Transcript Livestock Outlook

Cattle Outlook &
Risk Management Using BeefBasis.com
James Mintert, Ph.D.
Professor & Extension State Leader
Department of Agricultural Economics
Kansas State University
Garden City, KS
October 3, 2007
www.agmanager.info/livestock/marketing
[email protected]
A Picture of A Healthy Industry
Million Head
U.S. Cattle Inventory
January 1, 1925-1975
140
130
120
110
100
90
80
70
60
50
25
30
35
40
45
50
Year
Source: USDA & K-State Research & Extension
55
60
65
70
75
KSU Dept. of Ag Econ
www.agmanager.info
A Shrinking Industry
Responding to a Lack of Profitability
U.S. Cattle Inventory
January 1, 1975-2007
140
130
Million Head
120
110
100
90
80
Current inventory is about 26%
smaller than in 1975
70
60
50
75
80
85
90
Year
Source: USDA & K-State Research & Extension
95
00
05
KSU Dept. of Ag Econ
www.agmanager.info
But Weaker Demand Was Key
Beef Demand 1980-1998
Annual Retail Choice Beef Demand Index
100
90
Index Value
80
70
94
88 86
83
79 76
70 69
66 65
62
60
50
40
59 58
56 55 53
51 50
30
20
10
0
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98
Year
Source: USDA, Dept. of Commerce & K-State Research & Extension
Price Deflated By CPI, 1980 =100 for Beef Demand Index
KSU Dept. of Ag. Econ.
www.agmanager.info
Downturn Got Underway in mid-2005
Rebound In Spring 2007?
Quarterly Retail Choice Beef Demand Index
% Change From Prior Year, 1998.1 - 2007.2
% Change from Prior Year
15%
10%
5%
0%
-5%
-10%
-15%
98.1
99.1
00.1
01.1
02.1
03.1
04.1
Year & Quarter
Source: USDA, Dept. of Commerce, & James Mintert, K-State Ag. Economics
05.1
06.1
07.1
Beef Demand Shifters
What’s been taking place recently?
Demand index does not indicate why shifts occur
• Possible reasons for recent downturn
– Low carb diet effect has worn off
– Consumer’s disposable income growth slowing
• Domestic demand could remain soft
• How do we turn this around?
International Trade Outlook
U.S. Was A Net Exporter From 1981-2003
Net Exports of U.S. Cattle, Beef, & By-Products
1979-2006
3.00
2.50
2.00
1.50
Billion $
1.00
0.50
0.00
-0.50
-1.00
-1.50
-2.00
79
81
83
85
Source: U.S. Dept. of Commerce & LMIC
87
89
91
93
Year
95
97
99
01
03
05
Net Exports = Exports - Imports
Top 5 Importers
Accounted for 91% of U.S. Exports
Top 10 Importers of U.S. Beef
Ranked by Value of Imports in 2003
Other Category Consists of All Other Destinations
$1,600,000
U.S. needs to
recapture these
markets to regain
$’s and volume
.
$1,400,000
.
$1,200,000
Value (Thousand $)
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Japan
Mexico S. Korea Canada
Source: USDA-FAS
.
Hong
Kong
Taiwan
Destination
Russia
China
Kuwait
Egypt
Other
Gains In Japan Have Been Small
Jan-July ‘07 Was Still 84% Below Jan-July ‘03
Japan's Share of U.S. Beef Exports
.
.
60%
50%
Market Share (%)
40%
30%
20%
10%
0%
91
92
93
94
95
96
97
98
99
Year
Source: USDA & KSU,
Measured On A Carcass Weight Basis
00
.
01
02
03
04
05
06
Where Are We Headed?
Trade
• U.S. strength is in high quality beef products
– Will higher corn prices erode this advantage?
• Regaining market share will take several years
– Market access is key
– Korea & Japan
• Consumer incomes in importing countries are key
to long-run growth in beef exports
• Other countries may have comparative advantage
in cow-calf production
Supply Side in the U.S.
Strong Profitability Encouraging Expansion, But…
Drought Conditions Discouraged Expansion in ’06
300
$'s Per Cow
.
250
Estimated Kansas Cow-Calf Returns
.
200
150
100
50
0
-50
-100
75
77
79
81
83
85
87
89
Source: Kansas Farm Management Association
Returns Above Variable Costs
91 93
Year
95
97
99
01
03
05
KSU Dept. of Ag Econ
www.agmanager.info
And Expansion Still Appears To Be On Hold…
January-mid-Sept. Beef Cow Slaughter Up 7% vs. 2006
Weekly F.I. Beef Cow Slaughter
75
Thousand Head
70
65
60
55
50
45
40
2006
2007
5 Yr Avg
35
01/06
02/24
04/14
06/02
07/21
Week Ending
Source: USDA & James Mintert, K-State Ag. Economics
09/08
10/27
12/15
KSU Dept. of Ag Econ
www.agmanager.info
Plains Pastures Are Much Better Than In ‘06
GREAT PLAINS REGION
RANGE AND PASTURE CONDITION
Percent
70
Percent Poor and Very Poor, Weekly
60
Avg.
200105
2006
50
40
30
20
2007
10
0
May
Data Source: USDA/NASS, LMIC
Jul
Sep
But U.S. Conditions Still Worse Than Average
US RANGE AND PASTURE CONDITION
Percent Poor and Very Poor, Weekly
Percent
60
50
Avg.
200105
2006
40
30
20
2007
10
0
May
Source: USDA/NASS & LMIC
Jul
Sep
Million Head
Modest Slaughter Decline Expected in ‘08
43
42
41
40
39
38
37
36
35
34
33
32
31
Annual U.S. Commercial Cattle Slaughter
Excess slaughter capacity means
spread between live and wholesale
prices will remain tight
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Year
Source: USDA & James Mintert, K-State Ag. Economics
LMIC Forecasts for 2007-2008
Narrow Processor Margins Are
Supporting Slaughter Cattle Prices
250
Estimated Beef Live To Cutout Margins,
Monthly
.
200
$/Head
150
100
50
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Date
Source: LMIC & James Mintert, K-State Ag. Economics
On Feed Inventory Below A Year Ago
U.S. Cattle On Feed
Lots Over 1000 Head
12.25
2007
.
11.75
Million Head
12.00
11.50
2006
5 Yr. Avg.
11.25
11.00
10.75
10.50
10.25
10.00
9.75
9.50
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Month
Source: USDA & James Mintert, K-State Ag. Economics
KSU Dept. of Ag Econ
www.agmanager.info
Placements Down Sharply This Summer
U.S. Net Placements
Lots Over 1000 Head
.
2.75
2007
Million Head
3.00
2.50
2006
5 Yr. Avg.
2.25
2.00
1.75
1.50
1.25
1.00
Jan
Feb
Mar
Apr
May
Jun
Jul
Month
Source: USDA & James Mintert, K-State Ag. Economics
Aug
Sep
Oct
Nov
Dec
KSU Dept. of Ag Econ
www.agmanager.info
Changing Composition of Placements On Feed
U.S. Placements of Cattle On Feed, By Weight
May 2007 - August 2007 vs. May 2006 - August 2006
Weight Group
Less Than 600 Lbs.
600-699 Lbs.
700-800 Lbs.
800-900 Lbs.
Less Than 700 Lbs.
Over 700 Lbs.
Total
% Change
# Head Change
From Prior Year From Prior Year
-32.8%
(580,000)
-12.9%
(182,000)
6.0%
117,000
4.8%
105,000
-24.0%
(762,000)
5.4%
222,000
-7.4%
(540,000)
Weather’s Impact On Performance
Held Weights Down Until Recently
Weekly F.I. Cattle Dressed Weight
800
2006
790
2007
5 Yr Avg
Pounds .
780
770
760
750
740
730
01/06
02/24
04/14
06/02
07/21
09/08
10/27
12/15
Week Ending
Source: USDA & James Mintert, K-State Ag. Economics
KSU Dept. of Ag Econ
www.agmanager.info
Long Term Trend Is Still Toward Higher Weights
Weights Expected To Be Above Year Earlier This Fall & Winter
Commercial Cattle Carcass Weights
.
Dressed Wt./Head (Lbs.)
.
790
770
750
730
710
690
Trend (1986-
670
650
630
610
590
570
70
75
80
85
90
Year
Source: USDA & James Mintert, K-State Ag. Economics
95
00
05
K-State Dept. of Ag Econ
www.agmanager.info
Little Change in Beef Production Expected in ‘08
28
Commercial Beef Production
Billion Pounds
27
26
25
24
23
22
21
20
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Year
Source: USDA & James Mintert, K-State Ag. Economics
LMIC Forecasts for 2007-2008
KSU Dept. of Ag Econ
www.agmanager.info
Prices Have Rallied…
Kansas Direct Slaughter Steers
Weekly Weighted Average Live Weight Prices
105
2006
2007
Price ($/cwt.)
100
5 Yr Avg
95
90
85
80
75
01/05
02/16
03/30
05/11
06/22
08/03
09/14
10/26
12/07
Week Ending Date
Source: USDA & James Mintert, K-State Ag. Economics
KSU Dept. of Ag Econ
www.agmanager.info
Record High Prices in ’07 & Again in ‘08
Kansas Direct Slaughter Steer Prices .
100
95
Price ($/cwt.)
90
85
80
75
70
65
60
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Year
Source: AMS-USDA, Dodge City, KS, 2007 partially estimated, 2008 forecast
Futures Forecast Prices
Over $100 in Late Winter & Early Spring
Mid-Month Futures Based Price Forecasts
Kansas Slaughter Steers
106
104
Price ($/cwt.)
102
100
98
96
94
92
90
3 Yr. Avg. Basis
Most Neg. Basis
Most Pos. Basis
88
Oct.
'07
Nov.
'07
Dec.
'07
Jan.
'08
Feb.
'08
Mar.
'08
Apr.
'08
May
'08
Jun.
'08
Jul.
'08
Aug.
'08
Sep
'08
Oct
'08
Nov
'08
Dec
'08
Month & Year
Source: USDA & James Mintert, K-State Ag. Economics
Based on 10.01.07 CME Live Cattle settlement prices
KSU Dept. of Ag Econ
www.agmanager.info
Feeders Climbing Back Near $120
Kansas Combined Auction (Dodge City, Pratt, Salina)
Weekly Weighted Average 700-800 Lb. Steer Prices
125
Price ($/cwt.)
120
115
110
105
100
2006
95
2007
5 Yr Avg
90
85
01/05
02/16
03/30
05/11
06/22
08/03
09/14
10/26
12/07
Week Ending Date
Source: USDA & James Mintert, K-State Ag. Economics
KSU Dept. of Ag Econ
www.agmanager.info
Strong Fed Cattle Prices Supporting Feeder Values
Feed Grain Prices Will Be Key
Price ($/cwt.)
Dodge City, KS 700-800 Lb. Steer Prices .
115
110
105
100
95
90
85
80
75
70
65
60
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Year
Source: AMS-USDA, Dodge City, KS & KSU, 2007 partially estimated, 2008 forecast
But Feeder Futures
Forecast Weaker Prices This Winter
Mid-Month Futures Based Price Forecasts
700-800 Lb. Feeder Steers, Dodge City, KS
125
123
Price ($/cwt.)
121
119
117
115
113
111
109
3 Yr. Avg. Basis
Most Neg. Basis
Most Pos. Basis
107
Oct. '07
Nov.
'07
Dec.
'07
Jan. '08 Feb. '08
Mar.
'08
April
'08
May '08 Jun. '08 Jul. '08
Aug.
'08
Sep.
'08
Month & Year
Source: CME & K-State Research & Extension
Forecasts =10/01/07 Futures Price + Basis Estimates
KSU Dept. of Ag Econ
www.agmanager.info
Calf Prices Rebounded Sharply This Summer
Kansas Combined Auction (Dodge City, Pratt, & Salina)
Weekly Weighted Average 500-600 Lb. Steer Prices
145
140
Price ($/cwt.)
135
130
125
120
115
110
105
2006
100
2007
5 Yr Avg
95
01/06
02/17
03/31
05/12
06/23
08/04
09/15
10/27
12/08
Week Ending Date
Source: USDA & James Mintert, K-State Ag. Economics
KSU Dept. of Ag Econ
www.agmanager.info
Feed Costs Will Be A Big Factor in Calf Price Outlook
Cycle Peak was in ’05
Price ($/cwt.)
Dodge City, KS 500-600 Lb. Steer Prices .
135
130
125
120
115
110
105
100
95
90
85
80
75
70
65
60
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Year
Source: AMS-USDA, Dodge City, KS & KSU, 2007 partially estimated, 2008 forecast.
Ethanol, Corn Prices, & Cattle
Implications for Cattle Feeding Industry
Where Will Future Expansion Take Place?
A Growing Industry
Kansas Cattle On Feed
Thousand Head
2750
Monthly, 1992-2005
2500
2250
2000
1750
1500
1992
1994
1996
Source: USDA & K-State Ag. Economics
1998
2000
Year
2002
2004
Southern Plains Feeders
Losing Market Share?
KS, OK, TX Placements of Cattle On Feed
% of U.S. Placements, Prior October thru June of Current Year
54%
Percenct of U.S. Total
53%
52%
51%
50%
49%
1998
1999
2000
2001
2002
2003
Year
Source: USDA, Cattle On Feed & James Mintert, K-State Dept. of Ag. Economics
2004
2005
2006
2007
Cattle Feeding Shifting North?
NE, IA, SD Placements of Cattle On Feed
% of U.S. Placements, Prior October thru June of Current Year
29%
Percenct of U.S. Total
28%
27%
26%
25%
24%
23%
22%
1998
1999
2000
2001
2002
2003
Year
Source: USDA, Cattle On Feed & James Mintert, K-State Dept. of Ag. Economics
2004
2005
2006
2007
Key Points
• Strong slaughter cattle prices ahead in ’07 & ’08
– Herd expansion in U.S. cut short
– Slow export market recovery
– Domestic demand could be weak
• High feed grain prices are the “new reality”
– High corn price volatility is also the new reality
• Feeder & calf prices supported by high fed cattle
prices
– would be even higher with lower feed costs
• Upper Midwest DGS concentration will encourage
feeding expansion in the North
Improved Feeder Cattle Basis Forecasts
Forecasts From Two Different Models Provided
750 Lb. Steer Basis Forecasts, Amarillo, TX
Forecasts For: 10.31.2007
Sensitivity Analysis Provided
Impact of Changes in Corn & Live Cattle Prices on Basis
750 Lb. Steer Basis Forecast for 10.31.2007, Amarillo, TX
Need A Forecast For A Different Weight?
Go Back To The Input Screen & Change It
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OKC Medium & Large, #1 700-750 Lb. Steers
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