Transcript Livestock Outlook

Cattle Outlook
Kansas Agricultural Bankers Association
April 20, 2006
James Mintert, Ph.D.
Professor & Extension State Leader
Department of Agricultural Economics
Kansas State University
www.agmanager.info/livestock/marketing
[email protected]
K-State Research & Extension
Forces Shaping Change in U.S. Beef Sector
• Beef Demand
• International Trade
• Shifts in Optimum Firm Size
• Putting It All Together
K-State Research & Extension
Beef Demand
K-State Research & Extension
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
K-State Research & Extension
A Shrinking Industry
Responding to a Lack of Profitability
U.S. Cattle Inventory
January 1, 1975-2006
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
K-State Research & Extension
Measuring Changes In 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
K-State Research & Extension
Measuring Changes In Beef Demand
1998-2005
Annual Retail Choice Beef Demand Index
100
90
80
Index Value
70
Beef Demand During All of ’05 Decreased About 3.6%
But Demand in ’05 Was Still Up About 21% from 1998 Level
60
50
50
52
54
56
99
00
01
55
02
59
63
61
04
05
40
30
20
10
0
98
Year
03
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
K-State Research & Extension
Beef Demand Shifters
What’s been taking place recently?
• Growth in consumer income
• New product offerings
• Positive health information
– Low carb diets
– But low carb diet effect appears to have leveled off
• Implication: beef demand could weaken
– Product innovation will be important
K-State Research & Extension
Who Benefits Most from Beef Demand Increases?
– In the long run:
• Cow-calf producers
– How?
• Higher prices for calves & culls
– Profitability Increases
– Rise in profitability leads to industry expansion
K-State Research & Extension
Trade
• All trade is voluntary
• All trade is mutually beneficial
• International trade increases consumption
possibilities
K-State Research & Extension
If Trade Is So Good, Why Is It Controversial?
• Free markets and free trade increase social
welfare (benefits outweigh costs) for society at
large
• But not all individuals and groups are made
better off
K-State Research & Extension
Increases in Trade Fueled Economic Growth
World GDP
Annual, Inflation Adjusted (2000 $'s)
40
35
Trillion $
30
25
20
15
10
71
76
81
86
91
96
01
06
Year
Source: World Bank & ERS-USDA, 2006 Estimated
K-State Research & Extension
U.S. Has Been A Net Exporter Since 1981
Net Exports of U.S. Cattle, Beef, & By-Products
1979-2005
3.00
2.50
2.00
Billion $
1.50
1.00
0.50
0.00
-0.50
79
81
83
85
87
89
91
93
95
97
99
01
03
05
-1.00
-1.50
-2.00
Source: U.S. Dept. of Commerce & LMIC
Year
Net Exports = Exports - Imports
K-State Research & Extension
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
.
$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
Russia
China
Kuwait
Egypt
Other
Destination
K-State Research & Extension
Cattle Imports from Canada Are Increasing
But Rebound Has Been Slower Than Expected
Annual Cattle Imports From Canada .
1.8
.
1.6
1.4
Million Head
1.2
Aug.-Dec. ’05 imports
35% below 2002 and
11% below the
2000-2002 average
1.0
0.8
0.6
0.4
0.2
0.0
74 76
Source: USDA
78 80
82 84 86
88 90
92 94
96 98
00 02 04
Year
K-State Research & Extension
Increases in Beef Industry Concentration
K-State Research & Extension
Cattle Feeding Concentration Increasing
1975
7 Major Feeding States
• 56,221 feedlots marketed 15 million cattle
• Average marketings/feedlot = 267 head
• Feedlots > 1,000 hd. (1,221 lots) marketed 74% of
cattle
Source: USDA, Cattle On Feed
7 states = AZ, CA, CO, IA, KS,
NE, TX
K-State Research & Extension
Fewer But Larger Cattle Feeders
1995
7 Major Feeding States
• 23,472 feedlots marketed 20.2 million cattle
• Average marketings/feedlot = 858 head
• Feedlots >1000 hd. (1,584 lots) marketed 93%
of cattle
Source: USDA, Cattle On Feed
7 states = AZ, CA, CO, IA, KS,
NE, TX
K-State Research & Extension
Even Fewer But Larger Cattle Feeders
2004
7 Major Feeding States
• 14,932 feedlots marketed 20.4 million cattle
• Average marketings/feedlot = 1,369 head
• Feedlots >1000 hd. (1,632 lots) marketed 95%
of cattle
Source: USDA, Cattle On Feed
7 states = AZ, CA, CO, IA, KS,
NE, TX
K-State Research & Extension
Survivor Analysis:
Which Size Category Is Gaining Market Share?
Share of U.S. Fed Cattle Marketings
Share of U.S. Fed Cattle Marketings
By Feedyard Size Category, 1979-2004
60%
32,000 Hd. & Over
8,000-15,999 Hd.
2,000-3,999 Hd.
50%
16,000-31,999 Hd.
4,000-7,999 Hd.
1,000-1,999 Hd.
40%
30%
20%
10%
0%
79
81
83
85
87
89
91
93
95
97
99
01
03
Year
Source: USDA, LMIC, & K-State Research & Extension
K-State Research & Extension
Why Is Feedlot Concentration Increasing?
• Lower costs for larger firms
• Why?
• Larger firms in better position to utilize
– Technology
– Management skills
• Labor management
• Financial management
• Marketing management
• Implication: Small & medium size feeders
operate at a cost disadvantage
K-State Research & Extension
Beef Packing Sector
Concentration Increased Dramatically
• 4-Firm Concentration Ratio (CR4) increased from
41% to 78% during ’80’s
– Transition to large plant sizes was dramatic
– 1972
• 70% of all slaughter in plants handling less than 250,000 hd/year
• 35% of all slaughter in plants handling less than 100,000 hd/year
– 1992
• 70% of all slaughter in plants handling over 500,000 hd/year
• 4% of slaughter in plants handling less than 100,000 hd/year
Source: McDonald & Ollinger, 2005
K-State Research & Extension
Have Packing Industry Changes
Been Good or Bad?
Shift toward larger plant sizes reduced costs
dramatically
Industry Weighted Average Processing Costs
Year
Per Head Cost (1992$)
1977
$131.42
1992
$96.58
1997
$90.65
2002
$85.09
Source: McDonald & Ollinger, 2005
K-State Research & Extension
Have Packing Industry Changes
Been Good or Bad?
• Meat packing labor productivity increased
– Index of output per hour rose 80% from 1970 to 1998
• 1970 -1998, inflation adjusted spread between
live and wholesale beef prices declined 57%
• Technology & productivity improvements
– reduced farm-wholesale price spread by $0.23/cwt.
– boosted live cattle prices $1.75/cwt.
Source: Marsh & Brester, 2001
K-State Research & Extension
What About the Rest of the Food Supply Chain?
Beef Packer & Retail Grocer Concentration
2004 concentration levels (approximate)
Top 4 Beef Packers
(steer & heifer slaughter)
Top 4 Retail Grocers
82% Market Share
33% Market Share
Tyson
Cargill
Swift & Co.
National Beef
Wal-Mart (15%)
Kroger (7%)
Costco (6%)
Albertsons (5%)
Sources: GIPSA-USDA, Cattle Buyers Weekly, and Supermarket News, Top 75 Grocery Retailers
K-State Research & Extension
Where Are We Headed?
Trade
• U.S. strength is in high quality beef products
• Other countries may have comparative
advantage in cow-calf production
• Regaining market share could take years
• Consumer incomes in importing countries
are key to long-run growth in exports
K-State Research & Extension
Long, Slow Road to Export Recovery
Annual U.S. Beef Exports
3.0
2.5
Billion Lbs.
2.0
1.5
1.0
0.5
0.0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
Year
Source: USDA & LMIC, 2006-2007 Forecasts
K-State Research & Extension
Where Are We Headed?
Beef Packing Sector
•
Lower costs encouraged growth of large packing plants
•
Movement toward large firms encouraged by
– Lower operating costs
– Lower procurement costs (per unit)
– Lower marketing costs (per unit)
– And food safety advantages
•
Bulk of transition to large plants & firms has already taken place
•
Future developments likely to be in more vertical alliances or integration
•
Small packing plants operate at huge cost disadvantage
– Future Beef (Winfield, KS) - Bankrupt
– Iowa Quality Beef Supply Network (Tama, IA) - Bankrupt
K-State Research & Extension
Where Are We Headed?
Beef Demand
• Short run gains from low-carb diets behind us
• Future gains will come from product innovation
• Opportunities abound for innovators
K-State Research & Extension
Pork Production Expected To Rise Next Several Years
Annual U.S. Commercial Pork Production .
23
Billion Pounds
21
19
17
15
13
11
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
Year
Source: USDA, 2006 & 2007 LMIC Forecasts
Source: USDA,
1999 KSU Forecast
K-State Research & Extension
Poultry Production Increases Could Moderate
Annual U.S. Poultry Production
Ready-To-Cook Weight
45
Chicken Production
Poultry Production
(Billion Lbs.)
40
Turkey Production
35
30
25
20
15
10
5
0
81
83
85
87
89
91
93
Source: USDA & K-State Research & Extension
LMIC Forecasts for 2006 & 2007
95
Year
97
.
99
01
03
05
07
KSU Dept. of Ag Econ
www.agmanager.info
K-State Research & Extension
Beef Production Will Rise Cyclically
28
Commercial Beef Production
27
Billion Pounds
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
Year
Source: USDA & K-State Research & Extension
LMIC Forecasts for 2006 & 2007
K-State Research & Extension
Record High Annual Average in ’05
Lower Prices in ‘06
W. Kansas Direct Slaughter Steer Prices .
90
Slaughter could rise 3 to 5%,
and beef production could rise 4 to 6%,
but trade improvements mean per capita
supplies could increase just 1 to 2%
Price ($/cwt.)
85
80
75
70
65
60
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
Year
Source: AMS-USDA, Dodge City, KS, 2006 Forecast
K-State Research & Extension
Where Are Corn Prices Headed?
Higher Corn Prices Spell Trouble for Livestock Producers
Corn Price ($/bu.)
Kansas Monthly Corn Prices
5.00
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1985-1989 Average = $2.23/bu.
1990-1994 Average = $2.40/bu.
1995-1999 Average = $2.65/bu.
2000-2004 Average = $2.23/bu.
2004 Average=$2.59/bu.
2005 Average=$2.02/bu.
75
77
79
81
83
85
87
Source: USDA-Kansas Agricultural Statistics &
K-State Research & Extension
89
91
93
95
97
99
01
03
05
Year
K-State Research & Extension
Feeders In ‘05 Averaged A Record High of $112/cwt.
Prices in ’06 Could Wind Up Near ’04’s Average
Dodge City, KS 700-800 Lb. Steer Prices .
115
110
105
Price ($/cwt.)
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
Year
Source: AMS-USDA, Dodge City, KS & KSU, 2006 Forecast .
K-State Research & Extension
Record High Calf Prices In ‘05
And Near Record High in ‘06
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
Year
Source: AMS-USDA, Dodge City, KS & KSU, 2006 Forecast .
K-State Research & Extension
www.agmanager.info/livestock/marketing