Transcript FarmEcon LLC A source of information on global farming and food systems Thomas E.

FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2011 Turkey and
Protein Outlook
Dr. Thomas E. Elam
President
FarmEcon LLC
November 30, 2010
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Headline issues for 2011
Recession has officially ended, but it does not feel
like a recovery
$3.2 trillion consumer debt write-off, and climbing
Feed costs – large crops, huge demand, likely
record-high feed costs
Total protein supplies reduced enough to stop the
losses – until the October corn yield “surprise”
Improved pricing may lead to overexpansion
But likely not until 2012
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Globally: More Spending = More Meat
On average +10% Spending = +9% more meat
350
$1 trillion increase in spending = 9 mmt more meat produced
30
300
250
25
200
20
R2 = 0.9988
15
150
10
100
5
50
06
03
20
00
20
20
97
19
94
19
91
88
19
19
85
19
82
19
79
76
19
73
19
19
70
19
67
19
19
19
64
-
61
-
Million Tons Total Meat
Consumer Spending, Trill. $2000
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Global Consumer Expenditures (constant 2000 US$Trillion)
Global Total Meat Production, Million Tons
Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Headline (U1) unemployment rate
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Actual (U6) unemployment rate
U1 + marginally attached + discouraged potential workers
Does not include those who have totally given up looking for work
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Labor force participation rate, %
Recent decline includes mainly those who have totally given up looking for work
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Private sector employment
The business sector is leading the jobs recovery.
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Government sector employment
The government sector is reducing jobs due to state and local financial issues.
The spikes are temporary Census workers in 2000 and 2010.
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Why are these statistics important?
Issues for long term income recovery
Work = consumer income = spending =
MEAT DEMAND
Weak 2010/2011 protein demand increase
2010 protein price strength almost totally
due to supply reductions
If meat supplies increase in the face of low
income growth, prices will decline
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Protein supply headlines
Money finally ran out for pig and cattle
operators
Thus, sow reductions and fewer fed cattle
Turkey producers made large cuts
Even 2009 broiler production dropped
Wholesale meat prices pushed higher to
cover $3+ corn and $300+ soybean meal
Now need to think about $5 corn!
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Informa model broiler margins
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Informa model turkey margins
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Farrow-Finish returns, IA State budget
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Yearling steer returns, IA State budget
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Downsizing meat production
All feed users adjusting to a new reality
Beef/pork had 2009 overcapacity issues
When could we get back to the 2008 peak?
Turkey: 2012-13
Chicken: 2011-12
Fed Beef: 5-10 years, if ever
Pork: 2012/2013
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2003-2011 total meat production:
2.5 billion pounds went away in 2009
94,000
Million Pounds
92,000
90,000
88,000
86,000
84,000
82,000
80,000
2003 2004 2005 2006 2007 2008 2009 2010f 2011f
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
TURKEY OUTLOOK
2010/11
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey and parts prices
Overproduction in 2008/early 2009 killed
pricing across the spectrum
Frozen stocks got “out of control”
Reduced 2009/2010 production has restored
demand/supply balance
Prices now high enough to about cover costs
Did prices increase enough to encourage
2011/2012 overproduction?
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey cold storage 2007-2010
700,000
600,000
000 Pounds
500,000
400,000
300,000
200,000
100,000
-
Whole Birds
Other Turkey
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
*ex-processor, 30% whole birds, 70% cutout X Domestic Consumption
2011F
2010F
2009
2008
2007
2006
2005
2004
2003
2002
2001
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2000
$Million
Wholesale Value of the U.S. Market*
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Wtd. Average: Whole Birds (30%) &
Cutout (70%)
Large drops in 2009-2010 consumption
needed to improve pricing
100¢
2010f
90¢
2011f
2007
2005
2008
80¢
70¢
60¢
2004
2006
Drop in production/
consumption needed to
recoup higher costs
2009
2000
2001
2002
50¢
40¢
16.0
2003
16.5
17.0
17.5
U.S. Turkey Consumption, Pounds per Person
18.0
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Poult placements, UB, weekly, point to
production restraint in early 2010
6,500,000
6,000,000
5,500,000
2006
5,000,000
2007
4,500,000
2008
4,000,000
2009
3,500,000
2010
Placements through week of July 9, 2009
1-Dec
1-Nov
1-Oct
1-Sep
1-Aug
1-Jul
1-Jun
1-May
1-Apr
1-Mar
1-Feb
1-Jan
3,000,000
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2010 Feed Costs and Weighted Prices
120¢
Cents/Pound
100¢
Weighted Cutout
80¢
Weighted Whole Birds
60¢
Feed Cost
40¢
20¢
Weighted Product Price Feed Costs
0¢
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2010/11 Turkey Forecast Summary
(Production, Use and Stocks in Million Pounds)
Beginning Stocks
Production
Total Supply
Exports
U.S. Consumption
Per Capita (Lbs.)
Total Use
Ending Stocks
USDA Hen Price, $/lb.
USDA Tom Price, $/lb.
USDA Breast Meat, $/lb
USDA Thigh Meat, $/lb
USDA MDT, $/lb
Margin over Feed, ¢
2007
218
5,914
6,132
554
5,318
17.6
5,871
261
$0.821
$0.820
$2.306
$0.957
$0.246
51.4¢
2008
261
6,216
6,477
676
5,404
17.7
6,080
397
$0.876
$0.873
$1.699
$1.013
$0.255
31.6¢
2009
397
5,626
6,023
534
5,226
17.0
5,760
262
$0.794
$0.794
$1.370
$0.940
$0.330
30.1¢
2010fcst 2011 fcst
262
230
5,550
5,625
5,812
5,855
540
550
5,042
5,055
16.3
16.1
5,582
5,605
230
250
$0.895
$0.900
$0.890
$0.900
$2.100
$2.000
$1.230
$1.200
$0.270
$0.300
53.0¢
48.0¢
Pct.
Change
-12%
1%
1%
2%
0%
-1%
0%
9%
1%
1%
-5%
-2%
11%
-9%
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2010/11 Turkey Outlook Summary
Demand will continue to be a major challenge
Economy expanding, but at 50% of typical recovery rate
Competing red meat supplies shrinking in 2010 and 2011
Chicken supplies are headed up next year, at least early
Feed cost outlook has deteriorated
2011 turkey prices likely close to 2010
Excellent 2010 margins will fade, but not turn
to losses
2012 could be a difficult year if expansion
continues
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2011 Feed Cost Outlook
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn price driven by RFS,
feed value, ethanol tax
credit, corn production
Corn, Central IL, Cents/Bu.
800
700
350
Katrina
600
500
400
300
Corn price driven by feed value
250
400
200
300
150
200
100
100
50
0
0
Corn, Central Illinois
New York Harbor Conventional Gasoline
Regular Gasoline, NY, Cents/Gal.
Long term perspective on corn prices
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn Stocks/Price Curve Shifts Up
$5.50
2010 USDA 11/2010 Fcst.
$5.00
2007
$4.00
2008
2009
$3.50
2006
$3.00
$2.50
$2.00
$1.50
1990-2005 Regression
$1.00
Season Avg. Farm Price = 4.28 - 21.28*S/U + 49.77*S/U2 (R² = 0.83)
1990-2009 Regression
$0.50
Season Avg. Farm Price = 4.26 - 21.25/U + 50.14*S/U 2 +$1.61*2006/2009 Price Shift (R² = 0.94)
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
8%
6%
$0.00
4%
Season Average Farm Price, Corn, $/Bushel
$4.50
Stocks/Use Ratio, Total Feedgrains, Crop of...
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
But ethanol is not everything
Weather and acreage still play a major role
Export and feed demand also still important
Prices elasticities – in decreasing rank
Ethanol is near 0, or infinity
Food and seed use near 0
Exports – very low response to price
Feed use – all that’s left to adjust
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn/Meal Outlook – 2011
Cash corn prices remain at $4-$7, meal at $300375, through next March (basis Illinois cash
markets)
2011 crops and demand drive prices after that
Ethanol production will grow due to RFS
More DDGS production DDGS becomes #2 feed ingredient
Ethanol use mandate = increased corn demand
Volatile energy prices are critical to outlook
More volatility in feed ingredients likely
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feed balance, including DDGS*
Item
Area Planted (Mill. Ac.)
Area Harvested (Mill. Ac.)
Yield (Tons/Ac)
Beg. Stocks (Mill. Tons)
Production (Mill. Tons)
Imports (Mill. Tons)
Total Supply (Mill. Tons)
Feedgrains Feed Use (Mill. Tons)
SBM Feed Use (Mill. Tons)
DDGS Feed Use (Mill. Tons)
Grains+DDGS+SBM feed use
FSI Use (Mill. Tons)
Fuel Ethanol Refinery Use (Mill. Tons)
Est. DDGS Prod. (Mill. Tons)
Est. Corn Used by Ethanol (Mill. Tons)
DDGS Exports (Mill. Tons)
Other FSI Use (Mill. Tons)
Exports (Mill. Tons)
Total Use (Mill. Tons)
Ending Stocks (Mill. Tons)
% Feedgrains Used for Fuel Ethanol
Ending Stocks-to-Use Ratio
U.S. Average Farm Corn Price, $/Ton
DDGS, 10%, Central IL, $/Ton
SBM, Hi-Protein, Decatur, IL, $/Ton
* September 1 Crop Year
2005/
2006
96.4
85.9
3.47
58.8
298.5
1.9
359.2
163.1
30.1
12.1
205.3
81.6
40.7
13.4
27.3
1.3
40.9
59.8
304.5
54.8
14%
18%
$79
$72
$158
2006/
2007
92.5
80.1
3.50
54.8
279.9
2.4
337.1
148.0
31.2
15.8
195.0
94.4
53.8
17.7
36.0
1.9
40.6
58.3
300.9
36.2
19%
12%
$120
$104
$186
2007/
2008
109.0
98.3
3.56
36.2
349.7
3.3
389.2
157.8
30.1
21.1
209.0
116.5
76.9
25.4
51.5
4.3
39.6
69.9
344.1
45.1
22%
13%
$165
$144
$305
2008/
2009
101.8
91.0
3.58
45.1
325.7
3.0
373.7
140.9
27.9
25.7
194.5
134.8
94.2
31.1
63.1
5.4
40.6
50.9
326.6
47.0
29%
14%
$160
$111
$300
2009/
2010
100.1
89.6
3.90
47.0
349.0
2.2
398.2
137.6
27.8
29.3
194.7
157.8
116.0
38.3
77.8
9.0
41.8
54.8
350.2
48.0
33%
14%
$140
$106
$282
2010/2011 2011/2012
FarmEcon FarmEcon
fcst.
Projected
99.6
89.7
3.69
48.0
331.0
2.0
381.0
137.0
27.5
29.4
193.9
164.0
121.9
40.2
81.7
10.9
42.1
53.5
354.5
26.5
37%
7%
$201
$163
$299
106.0
95.5
3.75
26.5
358.1
2.5
387.2
133.0
27.2
30.5
190.7
169.5
127.0
41.9
85.1
11.4
42.5
53.5
356.0
31.2
35%
9%
$167
$154
$318
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Shares of U.S. Feed Use - Feedgrains/SBM/DDGS
Share of Grains, DDGS and Soybean Meal Feed Use
(Numbers in the Bars are Metric Tons of Feed Use)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
11.6
15.2
20.3
30.1
31.2
30.1
163.1
148.0
157.8
24.7
28.1
28.2
29.3
27.9
27.8
27.5
27.2
140.9
137.6
137.0
133.0
2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/2011 2011/2012
FarmEcon FarmEcon
fcst.
Projected
Feedgrains
SBM
DDGS
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Long term issue – No new acres since 1990
Commodity
1990
2010
1990-2010
Change
Corn
Barley
Sorghum
Oats
Net Change, Feedgrains
66,953
7,529
9,089
5,948
81,263
2,466
4,658
1,263
14,310
(5,063)
(4,431)
(4,685)
131
Rapeseed
Soybeans
Oilseed, Sunflowerseed
Wheat
Net Change, Oilseeds and Wheat
77
56,513
1,851
69,103
1,421
76,823
1,873
47,637
1,344
20,310
22
(21,466)
210
Rye
Rice
Total
376
2,822
220,260
264
3,623
221,290
(111)
801
1,030
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Summary:
Higher feed costs now in protein prices
$4+ corn and $300+ soybean meal=normal
Feed cost volatility an ongoing issue
Likely to see another 2008 in the next 5 years
Increasing RFS and limited acreage are on a
collision course
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
What basics created the business?
Quality products
Safe products
Production system control
Competitive pricing vs. other proteins
Innovation in production and processing
Being close to the customer and consumer
Access to world markets
Excellent animal husbandry and disease prevention
Environmental stewardship
And more…
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
U.S. Meat Protein Shares Reflect Long Term
Market Competition
Turkey
100%
90%
Chicken
80%
70%
60%
Pork
50%
40%
30%
20%
Beef
10%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0%
Source: USDA/ERS
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FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Likely winners and losers
Higher feed costs = need for efficient production
Broilers 2:1 (or better)
Turkeys 2.6:1 (or better)
Hogs 3:1 (including sows, at best)
Fed cattle 6:1
Grass fed cattle 0:1
Beef cow herd likely to shrink for 4-5 years
Total protein production can increase if the mix
changes enough!
That is, less beef and pork and more poultry
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