Transcript Slide 1

Livestock
Outlook and Economics
Brenda L. Boetel
University of Wisconsin – River Falls
August 2008
1
Implications for livestock
• Cost of production lower than one month ago
– Lower oil costs
– Softer commodity market
– Steadily improving crop conditions
• Value of dollar increases has bearish tendencies for corn price
– Also for beef prices
2
Cattle Situation and Outlook
3
• Domestic beef demand has been relatively decent
• Expect increase for labor day
• Cutout value supported by higher chuck and round values relative to
rib and loin values
– Supports idea that demand for higher quality beef is softening
BOXED BEEF CUTOUT VALUE
Choice 600-900 Lbs. Carcass, Weekly
$ Per Cwt.
185
Avg.
2002-06
175
165
155
2007
145
135
2008
125
JAN
APR
JUL
OCT
4
CHOICE MINUS SELECT BEEF PRICES
Carcass Cutout Value 600-900 Lbs., Weekly
$ Per Cwt.
18
16
Avg.
2002-06
14
12
10
2007
8
6
4
2008
2
0
JAN
APR
JUL
OCT
• Spread has increased since this spring
• Determined by supply and demand for Choice and for Select meat
– Demand for choice is down, supply is up
5
What will happen to beef demand?
• Beef is more affected than any other protein by the economic
situation
• Look for weaker domestic demand
• International demand will depend on alternative protein production,
value of the dollar, trade restrictions
6
• Exports have increased (Jan – June was up 31%)
• Imports are down (Jan-June down 22%)
• Per capita beef supplies likely be down 2% for 2008
U.S. EXPORTS OF BEEF MUSCLE CUTS
MAJOR U S BEEF EXPORT MARKETS
Weekly
Carcass Weight, Annual
1000 MT
9
Mil. Pounds
700
8
600
Avg.
2001/05
500
7
Canada
6
400
2006
300
200
2007
100
Japan
5
4
Mexico
3
Korean
Rep.
2
1
0
Japan
Canada
Mexico
Korea
0
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
7
• Record high fed cattle prices and more are expected
• Slaughter price likely 3% above 2007
• Fed cattle producers will see red ink
– Cow-calf will have worst year in a decade
SLAUGHTER STEER PRICES
5 Market Weighted Average, Weekly
$ Per Cwt.
105
Avg.
2002-06
100
95
2007
90
85
80
2008
75
JAN
APR
JUL
OCT
8
• Smaller cattle supplies have supported
calf and feeder cattle prices
• Higher corn prices have depressed prices,
particularly calf prices
• Higher byproduct prices
• Lower margins for packers
9
COF declining
CATTLE ON FEED
US Total, Monthly
Mil. Head
12.5
• COF down 4% from August
2007 and 9% from July 2006
Avg.
20022006
12.0
11.5
2007
11.0
10.5
2008
10.0
9.5
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
CATTLE ON FEED OVER 90 DAYS
US Total, Monthly
Mil. Head
7.0
Avg.
20022006
6.5
6.0
2007
5.5
5.0
2008
4.5
4.0
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
10
FEEDLOT PLACEMENTS
US Total, Monthly
Mil. Head
2.8
Avg.
200206
2.6
2.4
2007
2.2
2.0
1.8
2008
1.6
1.4
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
• Placements were 2% above July 2007, but 15% below July 2006
11
Where are we headed?
• Commercial slaughter is expected to be smaller than year ago in Q3
and Q4
• Placements of heavier weight feeder cattle will delay fed cattle
marketings into early next year
• Beef production is expected to be lower by 2.5% in Q4
• Have continued strong byproduct prices
12
COMMERCIAL PORK PRODUCTION
Weekly Average, By Month
Mil. Pounds
510
490
Avg.
2002-06
470
450
430
2007
410
390
2008
370
350
JAN
MAR
MAY
JUL
SEP
NOV
• Cattle supplies are tight, but pork and poultry supplies are not
•2008 and 2009 will likely be record years
•Fourth Quarter 2008 and First Quarter 2009 will be problematic
13
Projections for 2008
• Choice Boxed Beef
– Decline to around $150-$155
– Q3-Q4 may be as low as $140-$145
– Spring will rebound to early 2008 levels
• Choice-Select Spread
– More choice beef
– Look for spread to remain narrow
– May approach 0 in late fall/winter
14
Projections
• Live cattle (5 market)
– Q3 2008
$97-99
– Q4 2008
$99-101
– Q1 2009
$94-98
– Q2 2009
$100-104
• Beef and cattle prices should remain fairly stable for remainder of
year
15
Longer Term Outlook
• All cattle inventory slightly down from July 2007
• Beef cow numbers are down 1% from July 2007
– Domestic cow slaughter increased causing liquidation
JULY 1 CATTLE INVENTORY
TOTAL COW SLAUGHTER
U.S.
Federally Inspected, Weekly
Mil. Head
Thou. Head
145
130
Avg.
2002-06
135
120
125
115
2007
110
105
95
100
85
2008
1993
1996
1999
2002
2005
2008
T
1990
O
C
1987
L
1984
JU
1981
AP
R
1978
JA
N
75
90
16
• Heifers held for beef cow replacements down 2%
• Beef cow numbers indicate where herd is going
– Beef heifer retention is precursor
– Both are down, indicates fewer beef calves for next two years
• Number of heifers on feed was down 3% while steers down 5%
from July 2007
– Reduced heifer retention
– Likely see a decrease in January 2009 cow herd
HEIFERS HELD AS BEEF
COW REPLACEMENTS
Mil. Head
July 1, U.S.
7
6
5
4
3
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
17
Summary and Implications
• High fat cattle prices support higher feeder cattle prices
• High corn/forage prices do NOT support high feeder cattle prices
• With good rainfall, many cattle will be on wheat pastures this fall
– Increase yearling price volatility
– May be swings in fed cattle prices next summer
• Economy and competing meat supplies will drive beef prices
• Barring a total economic collapse, cattle prices will have to increase
to encourage expansion
• Smaller beef production in 2009
– Increased heifer slaughter
– Decreased steer slaughter
– Decreased cattle imports
– Increased exports
• Improving world economy means increased demand for beef and
other proteins
• Value of dollar
• Producers can look for stable to increasing prices for next 2-3 years
18
Things to watch for
• Extent for foreign demand – especially Asia
• U.S. imports
• Feed grain and forage prices, particularly demand for corn for
ethanol
• Rate of U.S. beef cow slaughter
19
Other Issues
• Increasing demand for beef from alternative production systems
– Natural
– Organic
– Grass-fed
• Increasing demand for locally produced foods
• Animal welfare
• MCOOL/NAIS
20
Hog
Situation
and
Outlook
21
HOG SLAUGHTER
Federally Inspected, Weekly
Thou. Head
2,500
Avg.
2002-06
2,300
2,100
2007
1,900
1,700
2008
T
O
C
L
JU
AP
R
JA
N
1,500
• Hog kill was up 7% in June 2007
22
BARROW AND GILT DRESSED WEIGHT
Federally Inspected, Weekly
Pounds
204
202
Avg.
2002-06
200
198
2007
196
194
192
2008
T
O
C
L
JU
AP
R
JA
N
190
• Weights are down from Jun 2006 (but only by 1 to 2 pounds)
23
COMMERCIAL PORK PRODUCTION
Monthly
Mil. Pounds
2,250
2,150
Avg.
2002-06
2,050
1,950
1,850
2007
1,750
1,650
2008
1,550
1,450
JAN
MAR
MAY
JUL
SEP
NOV
• Pork production was up 7% from Jun 2006
• YTD pork production is up 10.3%
24
What are reasons for higher supply?
SOW SLAUGHTER
Federally Inspected, Weekly
Thou. Head
85
80
Avg.
2002-06
75
70
65
2007
60
55
50
2008
45
T
O
C
L
JU
AP
R
JA
N
40
•U.S. sow herd growth of 1-2% for the past 11 quarters – until June H&P repo
•Breeding inventory down 1% from last year, down 1% from last quarter
•Big sow slaughter surge in late June
25
PIGS PER LITTER
Quarterly
Head
9.7
9.2
8.7
8.2
7.7
7.2
1983
1986
1989
1992
1995
1998
2001
2004
2007
• March-May pig crop was up 4% from 2007, up 9% from 2006
• Average pigs per litter June-August was 9.38
• Good results occurring with circovirus vaccine
26
FEEDER PIG IMPORTS FROM CANADA
Weekly
Thou. Head
210
190
170
2007
150
130
110
90
2008
70
50
JAN
APR
JUL
OCT
• Year to date, feeder pig imports are up 14%
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SLAUGHTER BARROWS & GILTS
IMPORTS FROM CANADA
Thou. Head
85
Weekly
75
2007
65
55
45
35
2008
25
15
JAN
APR
JUL
OCT
• Market hog imports have been below 2007 since April
• Year to date imports are down 8%
• Week comparison is down 51%
28
Reasons for higher supplies
• U.S. sow herd growth of 1-2% for the past 11 quarters – until June
H&P report
• Growth in litter size and dramatic rebound of litters per breeding
animal
• Higher imports of Canadian feeder pigs and market hogs – but this
will end soon
• Effective circovirus vaccines
– Smaller death loss
– Fewer light weight hogs
– Better growth rates
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June Quarterly Hogs & Pigs Report
Category
Inventories on June 1
All hogs and pigs
Kept for Breeding
Kept for Market
Under 60lbs
60-119 lbs
120-179 lbs
180 lbs. and over
Farrowings
Mar-May sows farrowed
June-Aug intentions
Sep-Nov intentions
Mar-May pig crop
Mar-May pigs saved per litter
2007
2008 as
% of
2008 2007
63951
6120
57830
21782
14339
11790
9920
67661
6069
61591
22587
15167
12907
10931
105.8
99.2
106.5
103.7
105.8
109.5
110.2
3033
3132
3180
27896
9.2
3092
3070
3052
29000
9.38
101.9
98.0
96.0
104.0
102.0
30
BARROW AND GILT SLAUGHTER
Federally Inspected, Monthly
Thou. Head
10500
10000
Avg.
2002-06
9500
9000
8500
2007
8000
7500
2008
7000
JAN
MAR
MAY
JUL
SEP
NOV
• Slaughter was going down in June
• Will have much higher slaughter for the rest of the year
31
June 2008 Commercial Slaughter Forecast
2008
Q1
Q2
Q3
Q4
Year
2009
Q1
Q2
Lawrence
Mil Head % Change
Meyer
Mil Head
% Change
LMIC
Mil Head
% Change
29.610
27.900
28.426
31.308
117.244
11.0%
9.3%
7.0%
3.0%
7.4%
29.597
27.899
28.375
30.941
116.813
11.0%
9.3%
6.8%
1.8%
7.0%
29.957
27.929
28.531
31.383
117.441
11.0%
9.4%
7.4%
3.2%
7.6%
29.600
27.100
0.0%
-4.0%
29.084
26.769
-1.7%
-4.1%
29.118
26.934
-1.6%
-3.6%
32
Pork Demand
• Excellent pork demand through April
• May and June had decreases in pork demand
• Retail prices increased (but did not keep pace w/inflation – real price
fell)
• Record exports - YTD up 60%, May up 98%
33
BARROW AND GILT PRICES
Iowa - So. Minnesota, Carcass Base Price, Weekly
$ Per Cwt.
85
80
Avg.
2002-06
75
70
65
2007
60
55
2008
50
T
O
C
L
JU
AP
R
JA
N
45
• Currently 2008 prices are higher than 2007
•May see seasonal top this week
34
HOG CUTOUT VALUE
Weekly
$ Per Cwt.
90
Avg.
2002-06
85
80
75
2007
70
65
60
2008
T
O
C
L
JU
AP
R
JA
N
55
• Very high cutout values
• Packer margins are high (Highest gross margin since 1999)
35
Price Forecasts
Iowa (July)
Meyer (July)
LMIC
CME
Ia-S. MN Live
Price
National Net
Negotiated
Price, Avg. Wtg.
National Avg.
Weighted Base
Price
CME Lean Hog
Futures
Q1
$53.55
$53.19
$55.11
$54.26
Q2
$72.47
$71.39
$69.84
$71.66
Q3
64-68
63-67
71-75
$76.55
Q4
60-64
55-58
60-64
$75.77
Year
62-65
60-63
64-66
Q1
73-77
57-60
63-66
$81.45
Q2
83-87
77-81
73-76
$84.70
2008
2009
36
Where are we headed?
• Hog producers will see more losses for the remainder of the year
What can producers do?
• Watch corn and soybean market in order to move on lower prices
• Try to minimize losses
37
Sources
• Graphs
– LMIC – www.lmic.info
• Data
– USDA- NASS
38