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Minnesota Pork Congress – January 2013Pork Industry Economic UpdateSteve R. Meyer, Ph.D.Paragon Economics, Inc.           ...
Key drivers of pork producer profits -- 2013   Input prices and production costs =>    -   Will it rain?    -   Where wil...
Key drivers of pork producer profits -- 2013   Input prices and production costs   How will pork and hog demand hold up?...
Key drivers of pork producer profits -- 2013   Input prices and production costs   How will pork and hog demand hold up?...
Late April – concerned about N. Ia-S. Minn . . .           . . . But subsoil moisture was short!                          ...
Minn improved while rest of U.S. worsened . .  . . . 8/21: 77% drought, 44% severe or worse                             Pa...
Now – most of ECB is in good shape . . . . . . IA and MO are better, west is still parched                                ...
Largest deviation from trend yield since ‘88     . . . What is the new trend? – 157.5 for ‘13                             ...
Same for soybeans – down 10.2% vs. trend                           Paragon Economics, Inc.                             Fro...
Jan WASDE -- +300 mil. bu. for feed/resid . . .     . . . Tightest ending stocks estimate yet      U.S. CORN SUPPLY AND UT...
All usage estimates are much lower vs ‘11. . .                              Paragon Economics, Inc.                       ...
USDA finally agreed with me . . . . . . Animal numbers will not allow lower F/R                             Paragon Econom...
Implications of the animals themselves   Beef cow slaughter saves little or NO grain   Dairy cow slaughter DOES save gra...
Lowest Dec 1 corn stocks since 2004 . . .  . . . And we will use 17% more corn this year                              Para...
Hogs are the ONLY species to cut weights!                            Paragon Economics, Inc.                              ...
RFS is 13.2 bil. gal. in ’12, 13.8 bil. in 2013 . . .. . . 13.6 bil. gal. for ‘12-’13 crop yr = 4.86 bil. bu.             ...
Question: How many RINs are out there? . . . ~2 to 2.5 bil. gallons – will they be used ?                                P...
Ethanol margins: Gross margin < FC . . .   . . . Not covering VC – short-term shutdown     Ethanol: $2.17/gal     Corn: $6...
Ethanol margins over VC are NEGATIVE . . .. . . Have seen significant cutbacks since July              ESTIMATED ETHANOL M...
Ethanol responded – down 9.7% in Q3 & Q4   . . . 34.2M gal/day will use 4.47 bil. bu. in ‘13                              ...
Corn is still well ahead of oil price . . .  . . But it will converge – more acres, yield?                              Pa...
Cash corn – cheaper but far from cheap . . .     . . . But a good ‘13 crop = prices <$5/bu.                              P...
DDGS has finally come back into pig diets                            Paragon Economics, Inc.                              ...
Jan WASDE – higher yield but HIGHER crush . .        . . . Steady exports reflects S/A crop               U.S. SOYBEAN SUP...
South American crop still looks good   Argentina – some concerns    - Early wetness and now dryer conditions, some      a...
Where will SBM go? - Depends now on S/A . . . Support at $396 should be no surprise!                             Paragon E...
What will it take to recover? Situation 9/29                             Paragon Economics, Inc.                          ...
Jan 12 situation is MUCH better . . .                               Paragon Economics, Inc.                               ...
Lower costs for 2013 but costs have risen. . .        . . . By about $3/cwt in past 2 weeks                             Pa...
Profit outlook has dimmed . . .. . .futures-implied ’13 profit was -$2, now -$7                              Paragon Econo...
Another view – bad but not as bad as ‘09-’10                             Paragon Economics, Inc.                          ...
Critical Issues   Input prices and production costs   Demand – domestic and exports                              Paragon...
World economic conditions August 2011 . . .       . . . Improvement except in U.S. and EU                             Para...
November 2012 – EU Recession BUT        . . . China, Brazil growth improvement                            Paragon Economic...
The U.S. economy muddles along . . .              . . . Still slowed by uncertainty                              Paragon E...
Real PDI change: Revised down, April on . . .     . . . November was encouraging @ +1.8%                            Parago...
November RPI: Up from Oct, still <100 . . .                               Paragon Economics, Inc.                         ...
RPCE was good in November – for everyone! 4.4% higher beef per cap    consumption, higher prices   6% higher chicken pri...
ALL indexes are now positive for 12 mos . . . . . . If it lasts, first time that’s ever happened                          ...
Per cap cons <200# for first time since ‘90                . . . But this is a SUPPLY issue                              P...
Prices are increasing as supplies tighten . . .. . New records for beef in Nov, chicken in Oct                            ...
Further proof: Record high expenditures                           Paragon Economics, Inc.                             From...
Broiler flock near smallest since 1996 . . . . . . But was +2% in Dec and is same as yr ago                              P...
The Dec increase was unusual – expansion?                          Paragon Economics, Inc.                            From...
Sets and placements: Very close to ‘11 levels                            And were up 1.6% vs.                            ‘...
Weights were a big driver in spite of feed . . .. . . And were up 2.4% at 4.35 the first wk of ‘13                        ...
Broiler cutout begins 2013 strong . . .          . . . Will it be as stable as last year?                                P...
Chicken summary   Companies appear to be moving back to    expansion – profitable!   Breeder flock grew in December – un...
54% of pastures are poor/very poor. . .      . . . West, Cornbelt, North Plains are BAD                               Para...
Smallest U.S. beef cow herd since 1946                            Paragon Economics, Inc.                              Fro...
Smallest U.S. calf crop since 1949 . . .       . . . And not the higher rate of decline!                              Para...
Tight supplies of cattle outside feedlots . . .     . . . Down 1.7%, 2.7% and 3.3% last 3 years                           ...
Nov placements were 5.6% LOWER than ’11 . . . . . After -10, -11 ,-19 and -13% prior 4 months                             ...
Dec 1 COF was down 6% from 2011 . . .      . . . There were 700k head fewer on feed                             Paragon Ec...
Beef cow slaughter: -12.4% vs. ’11 . . . . . . And still showed liquidation in December                              Parag...
No turn-around in sight for availability. . .  . . . Per-cap down 2-3% in ‘12 and 3%+ in ‘13                              ...
When will Choice cutout finally break $200. .                             Paragon Economics, Inc.                         ...
Beef summary . ..   Weights remain high – Zilmax & Optiflexx?   Lower cattle numbers – partially offset by    higher wei...
Pork exports are still up 5.6% YTD vs. 2011 . . .                . . Oct was down 7.6% from ‘11                           ...
China/HK was 59% below yr. ago in Oct but . .   . . . +2% YTD; Mexico is +15%, Canada +17%                            Para...
Exchange rates   Real is the big mover among competitors   Peso and won have improved but are still    weaker than one y...
USDA: World slaughter +0.09% in 2013  . . . NO big reductions – even in the EU????                              Paragon Ec...
Take out China, US and EU 27 . . .                               Paragon Economics, Inc.                                 F...
Demand summary   Demand indexes are now positive for ‗12    – can they stay that way?   Exports are expected to grow; an...
Critical Issues   Input prices and production costs   Demand—domestic and exports   Hog Supplies                       ...
Dec H&P report – more hogs than expected . .          USDA QUARTERLY HOGS & PIGS REPORT                              Decem...
Litter size growth back to 1.3% in Q3. . .     . . . Trend has slowed a bit but still strong                              ...
‘13 slaughter will be slightly larger than ’12 . .            . . But the pattern will be different                       ...
Weights matched 5-yr avg in Q4 . . .. . . still 2+ lbs. lower, likely stay there thru Q2                                 P...
YTD pork production was up 1.8% yr/yr . . .      . . . And will be higher than ‘12 thru April                             ...
Lower cutout value through Thanksgiving . . .    . . . Usually the seasonal low – Hold $80?                             Pa...
National Net hogs rallied from Sept swoon . . .     . . . We still expect Q4 average of $78-$82                           ...
December slaughter forecasts   December 2012 Hogs & Pigs -- Commercial Slaughter Forecasts                             Miz...
Price forecasts                        December 2012 Hogs & Pigs - Price Forecasts                           Mizzou       ...
The larger Dec sow herd was not a surprise. .. . . Slaughter: Low enough to suggest growth                             Par...
Gilt slaughter percent suggest even more. . .. . Lower than 5-yr avg all but 3 wks since Sept                             ...
My model says finances are weak . . .. . . But lenders believe status is not this bad!                               Parag...
Why are YOU holding on?   Futures, esp. summer 2013 have offered    near breakevens for the year -- survive   Financial ...
Long-term issues   Costs, costs, costs = Prices, prices, prices    - Consumer incomes and spending    - How much less mea...
Questions or Comments?              Paragon Economics, Inc.                From information, knowledge
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Dr. Steve Meyer - Market Outlook for 2013 and Beyond

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Market Outlook for 2013 and Beyond - Dr. Steve Meyer, President of Paragon Economics, from the 2013 Minnesota Pork Congress, January 16-17, Minneapolis, MN, USA.

More presentations at http://www.swinecast.com/2013-minnesota-pork-congress

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Transcript of "Dr. Steve Meyer - Market Outlook for 2013 and Beyond"

  1. 1. Minnesota Pork Congress – January 2013Pork Industry Economic UpdateSteve R. Meyer, Ph.D.Paragon Economics, Inc. Paragon Economics, Inc. From information, knowledge
  2. 2. Key drivers of pork producer profits -- 2013 Input prices and production costs => - Will it rain? - Where will it rain? - When will it rain? - How much will it rain? - And will it be hot, hot, hot again this year? Paragon Economics, Inc. From information, knowledge
  3. 3. Key drivers of pork producer profits -- 2013 Input prices and production costs How will pork and hog demand hold up? - U.S. economy and consumer spending - World economy – exports and exchange rates - Prices of competitor goods – especially beef Paragon Economics, Inc. From information, knowledge
  4. 4. Key drivers of pork producer profits -- 2013 Input prices and production costs How will pork and hog demand hold up? Just how many hogs will we see and how big will they be? - December inventories suggest no reductions - How long will weights stay relatively low - What will happen with packer margins and capacity Paragon Economics, Inc. From information, knowledge
  5. 5. Late April – concerned about N. Ia-S. Minn . . . . . . But subsoil moisture was short! Paragon Economics, Inc. From information, knowledge
  6. 6. Minn improved while rest of U.S. worsened . . . . . 8/21: 77% drought, 44% severe or worse Paragon Economics, Inc. From information, knowledge
  7. 7. Now – most of ECB is in good shape . . . . . . IA and MO are better, west is still parched Paragon Economics, Inc. From information, knowledge
  8. 8. Largest deviation from trend yield since ‘88 . . . What is the new trend? – 157.5 for ‘13 Paragon Economics, Inc. From information, knowledge
  9. 9. Same for soybeans – down 10.2% vs. trend Paragon Economics, Inc. From information, knowledge
  10. 10. Jan WASDE -- +300 mil. bu. for feed/resid . . . . . . Tightest ending stocks estimate yet U.S. CORN SUPPLY AND UTILIZATION - JANUARY 2011/12 2012/13 2010/11 % Chng vs USDA Jan USDA Dec USDA Jan 11-12 Acres Planted Mil A 88.2 91.9 96.9 97.2 5.8% Acres Harvested Mil A 81.4 84 87.7 87.4 4.0% Yield Bu/A 152.8 147.2 122.3 123.4 -16.2% Beginning Stocks Mil Bu. 1708 1128 988 989 -12.3% Production Mil Bu. 12447 12360 10725 10780 -12.8% Imports Mil Bu. 28 29 100 100 244.8% Total Supply Mil Bu. 14182 13516 11814 11869 -12.2% Feed & Residual Mil Bu. 4795 4548 4150 4450 -2.2% Ethanol for fuel Mil Bu. 5019 5011 4500 4500 -10.2% Non-Ethanol FSI Mil Bu. 1407 1426 1367 1367 -4.1% Exports Mil Bu. 1834 1543 1150 950 -38.4% Total Usage Mil Bu. 13055 12527 11167 11267 -10.1% Carryover Mil Bu. 1128 989 647 602 -39.1% Stocks/Use 8.6% 7.9% 5.8% 5.3% -32.3% Nat. Wtd. Avg. Farm Price $/Bu. 5.18 6.22 6.80 - 8.00 6.80 - 8.00 19.0% Paragon Economics, Inc. From information, knowledge
  11. 11. All usage estimates are much lower vs ‘11. . . Paragon Economics, Inc. From information, knowledge
  12. 12. USDA finally agreed with me . . . . . . Animal numbers will not allow lower F/R Paragon Economics, Inc. From information, knowledge
  13. 13. Implications of the animals themselves Beef cow slaughter saves little or NO grain Dairy cow slaughter DOES save grain – up to 20-25 lbs. per day per cow All cattle are caught between high grain and poor pasture/lower hay supply Sow slaughter saves very little feed for 6 months – and we didn‘t reduce sows! Chicken and turkey can respond FAST and have a big impact on feed – esp SBM Paragon Economics, Inc. From information, knowledge
  14. 14. Lowest Dec 1 corn stocks since 2004 . . . . . . And we will use 17% more corn this year Paragon Economics, Inc. From information, knowledge
  15. 15. Hogs are the ONLY species to cut weights! Paragon Economics, Inc. From information, knowledge
  16. 16. RFS is 13.2 bil. gal. in ’12, 13.8 bil. in 2013 . . .. . . 13.6 bil. gal. for ‘12-’13 crop yr = 4.86 bil. bu. Paragon Economics, Inc. From information, knowledge
  17. 17. Question: How many RINs are out there? . . . ~2 to 2.5 bil. gallons – will they be used ? Paragon Economics, Inc. From information, knowledge
  18. 18. Ethanol margins: Gross margin < FC . . . . . . Not covering VC – short-term shutdown Ethanol: $2.17/gal Corn: $6.50/bu Natural Gas: $3.29/mmBtu Paragon Economics, Inc. From information, knowledge
  19. 19. Ethanol margins over VC are NEGATIVE . . .. . . Have seen significant cutbacks since July ESTIMATED ETHANOL MARGINS 1/11/12 1/4/13 1/11/13 Prices Corn $/bu 6.29 7.05 7.16 Ethanol $/gal 2.13 2.13 2.15 DDGS $/ton 188.50 253.25 252.50 Ethanol Value @ 2.8 gal/bu $/bu 5.96 5.96 6.02 DDGS Value @ 17.75#/bu. 1.67 2.25 2.24 Total Value 7.64 8.21 8.26 Gross Margin over corn cost 1.35 1.16 1.10 Return over all variable costs 0.31 0.12 0.06 Ethanol Value @ 2.8 gal/bu $/bu 5.96 5.96 6.02 DDGS Value @ 15.#/bu. 1.41 1.90 1.89 Total Value 7.38 7.86 7.91 Gross Margin over corn cost 1.09 0.81 0.75 Return over all variable costs 0.05 -0.23 -0.29 Paragon Economics, Inc. From information, knowledge
  20. 20. Ethanol responded – down 9.7% in Q3 & Q4 . . . 34.2M gal/day will use 4.47 bil. bu. in ‘13 Paragon Economics, Inc. From information, knowledge
  21. 21. Corn is still well ahead of oil price . . . . . But it will converge – more acres, yield? Paragon Economics, Inc. From information, knowledge
  22. 22. Cash corn – cheaper but far from cheap . . . . . . But a good ‘13 crop = prices <$5/bu. Paragon Economics, Inc. From information, knowledge
  23. 23. DDGS has finally come back into pig diets Paragon Economics, Inc. From information, knowledge
  24. 24. Jan WASDE – higher yield but HIGHER crush . . . . . Steady exports reflects S/A crop U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY 2011/12 2012/13 2010/11 % Chng vs USDA Jan USDA Dec USDA Jan 11-12 Acres Planted Mil A 77.4 75.0 77.2 77.2 2.9% Acres Harvested Mil A 76.6 73.8 75.7 76.1 3.1% Yield Bu/A 43.5 41.9 39.3 39.6 -5.5% Beginning Stocks Mil Bu. 151 215.0 169 169 -21.4% Production Mil Bu. 3329 3094.0 2971 3015 -2.6% Imports Mil Bu. 14 16.0 20 20 25.0% Total Supply Mil Bu. 3495 3325.0 3160 3204 -3.6% Crushings Mil Bu. 1648 1703.0 1570 1605 -5.8% Exports Mil Bu. 1501 1362.0 1345 1345 -1.2% Seed Mil Bu. 87 90.0 89 89 -1.1% Residual Mil Bu. 43 1.0 26 30 2900.0% Total Usage Mil Bu. 3280 3155.0 3031 3070 -2.7% Carryover Mil Bu. 215 169.0 130 135 -20.1% Stocks/Use 6.6% 5.4% 4.3% 4.4% -18% Nat. Wtd. Avg. Farm Price $/Bu. 11.30 12.50 13.55 - 15.55 13.50 - 15.00 14.0% Soybean Oil Price Cents/lb. 53.20 51.90 49.00 - 53.00 49.00 - 53.00 -1.7% Soybean Meal Price $/ton 345.52 393.53 440.00 - 470.00430.00 - 460.00 13.1% Paragon Economics, Inc. From information, knowledge
  25. 25. South American crop still looks good Argentina – some concerns - Early wetness and now dryer conditions, some are worried about shallow root systems - USDS lowered yield but the crop is still 54MMT – 35% larger than last year Brazil – biggest concern is logistics - A record crop – larger than ours – of 82.5 MMT, up 24% from ‗12 - Record acres and yields on early harvest are above average Paragon Economics, Inc. From information, knowledge
  26. 26. Where will SBM go? - Depends now on S/A . . . Support at $396 should be no surprise! Paragon Economics, Inc. From information, knowledge
  27. 27. What will it take to recover? Situation 9/29 Paragon Economics, Inc. From information, knowledge
  28. 28. Jan 12 situation is MUCH better . . . Paragon Economics, Inc. From information, knowledge
  29. 29. Lower costs for 2013 but costs have risen. . . . . . By about $3/cwt in past 2 weeks Paragon Economics, Inc. From information, knowledge
  30. 30. Profit outlook has dimmed . . .. . .futures-implied ’13 profit was -$2, now -$7 Paragon Economics, Inc. From information, knowledge
  31. 31. Another view – bad but not as bad as ‘09-’10 Paragon Economics, Inc. From information, knowledge
  32. 32. Critical Issues Input prices and production costs Demand – domestic and exports Paragon Economics, Inc. From information, knowledge
  33. 33. World economic conditions August 2011 . . . . . . Improvement except in U.S. and EU Paragon Economics, Inc. From information, knowledge
  34. 34. November 2012 – EU Recession BUT . . . China, Brazil growth improvement Paragon Economics, Inc. From information, knowledge
  35. 35. The U.S. economy muddles along . . . . . . Still slowed by uncertainty Paragon Economics, Inc. From information, knowledge
  36. 36. Real PDI change: Revised down, April on . . . . . . November was encouraging @ +1.8% Paragon Economics, Inc. From information, knowledge
  37. 37. November RPI: Up from Oct, still <100 . . . Paragon Economics, Inc. From information, knowledge
  38. 38. RPCE was good in November – for everyone! 4.4% higher beef per cap consumption, higher prices 6% higher chicken prices! Pork RPCE driven by 4% increase in per cap cons. Paragon Economics, Inc. From information, knowledge
  39. 39. ALL indexes are now positive for 12 mos . . . . . . If it lasts, first time that’s ever happened Paragon Economics, Inc. From information, knowledge
  40. 40. Per cap cons <200# for first time since ‘90 . . . But this is a SUPPLY issue Paragon Economics, Inc. From information, knowledge
  41. 41. Prices are increasing as supplies tighten . . .. . New records for beef in Nov, chicken in Oct Paragon Economics, Inc. From information, knowledge
  42. 42. Further proof: Record high expenditures Paragon Economics, Inc. From information, knowledge
  43. 43. Broiler flock near smallest since 1996 . . . . . . But was +2% in Dec and is same as yr ago Paragon Economics, Inc. From information, knowledge
  44. 44. The Dec increase was unusual – expansion? Paragon Economics, Inc. From information, knowledge
  45. 45. Sets and placements: Very close to ‘11 levels And were up 1.6% vs. ‘12 in first week of ‘13 And up 1.2% vs. ‘12 during first week of ‘13 Paragon Economics, Inc. From information, knowledge
  46. 46. Weights were a big driver in spite of feed . . .. . . And were up 2.4% at 4.35 the first wk of ‘13 Paragon Economics, Inc. From information, knowledge
  47. 47. Broiler cutout begins 2013 strong . . . . . . Will it be as stable as last year? Paragon Economics, Inc. From information, knowledge
  48. 48. Chicken summary Companies appear to be moving back to expansion – profitable! Breeder flock grew in December – unusual – but is still small relative to history Egg sets, placements – close to 2011 levels and have started ‗13 higher Did not expect growth – and it will not be huge if it comes – lower U.S. per cap supply Record-high prices -- again Paragon Economics, Inc. From information, knowledge
  49. 49. 54% of pastures are poor/very poor. . . . . . West, Cornbelt, North Plains are BAD Paragon Economics, Inc. From information, knowledge
  50. 50. Smallest U.S. beef cow herd since 1946 Paragon Economics, Inc. From information, knowledge
  51. 51. Smallest U.S. calf crop since 1949 . . . . . . And not the higher rate of decline! Paragon Economics, Inc. From information, knowledge
  52. 52. Tight supplies of cattle outside feedlots . . . . . . Down 1.7%, 2.7% and 3.3% last 3 years Paragon Economics, Inc. From information, knowledge
  53. 53. Nov placements were 5.6% LOWER than ’11 . . . . . After -10, -11 ,-19 and -13% prior 4 months Paragon Economics, Inc. From information, knowledge
  54. 54. Dec 1 COF was down 6% from 2011 . . . . . . There were 700k head fewer on feed Paragon Economics, Inc. From information, knowledge
  55. 55. Beef cow slaughter: -12.4% vs. ’11 . . . . . . And still showed liquidation in December Paragon Economics, Inc. From information, knowledge
  56. 56. No turn-around in sight for availability. . . . . . Per-cap down 2-3% in ‘12 and 3%+ in ‘13 Paragon Economics, Inc. From information, knowledge
  57. 57. When will Choice cutout finally break $200. . Paragon Economics, Inc. From information, knowledge
  58. 58. Beef summary . .. Weights remain high – Zilmax & Optiflexx? Lower cattle numbers – partially offset by higher weights – but lower beef supplies Cow slaughter remains high relative to the herd – pasture conditions – Rain? Longer term: Tighter and tighter per cap supplies, higher prices – thru 2015? Will beef cease to be a habit for anyone below the middle class? Paragon Economics, Inc. From information, knowledge
  59. 59. Pork exports are still up 5.6% YTD vs. 2011 . . . . . Oct was down 7.6% from ‘11 Paragon Economics, Inc. From information, knowledge
  60. 60. China/HK was 59% below yr. ago in Oct but . . . . . +2% YTD; Mexico is +15%, Canada +17% Paragon Economics, Inc. From information, knowledge
  61. 61. Exchange rates Real is the big mover among competitors Peso and won have improved but are still weaker than one year ago Strong renmimbi but rapidly falling yen Paragon Economics, Inc. From information, knowledge
  62. 62. USDA: World slaughter +0.09% in 2013 . . . NO big reductions – even in the EU???? Paragon Economics, Inc. From information, knowledge
  63. 63. Take out China, US and EU 27 . . . Paragon Economics, Inc. From information, knowledge
  64. 64. Demand summary Demand indexes are now positive for ‗12 – can they stay that way? Exports are expected to grow; another record in‘13; Exchange rates will be key Higher beef and chicken (??) prices will be positive for pork demand My biggest concern: Consumer income and expenditures - 77% of output is still sold here at home! Paragon Economics, Inc. From information, knowledge
  65. 65. Critical Issues Input prices and production costs Demand—domestic and exports Hog Supplies Paragon Economics, Inc. From information, knowledge
  66. 66. Dec H&P report – more hogs than expected . . USDA QUARTERLY HOGS & PIGS REPORT December 28, 2012 12 as Pre- Actual - 2011 2012 Pct of Report Est Category 11 Ests Inventories on Dec 1* All hogs and pigs 66,361 66,348 100.0 99.1 0.9 Kept for breeding 5,803 5,817 100.2 99.3 0.9 Kept for market 60,558 60,531 100.0 99.1 0.9 Under 50 lbs. 19,524 19,448 99.6 98.4 1.2 50-119 lbs. 16,643 16,643 100.0 99.0 1.0 120-179 lbs. 12,473 12,479 100.0 99.6 0.4 180 lbs. and over 11,918 11,961 100.4 100.5 -0.1 Farrowings** Sep-Nov sows farrowed 2,929 2,900 99.0 97.9 1.1 Dec-Feb Intentions 2,864 2,865 100.0 98.4 1.6 Mar-May Intentions 2,982 2,925 98.1 98.8 -0.7 Sep-Nov Pig Crop1* 29,365 29,443 100.3 99.0 1.3 Sep-Nov Pigs Saved/ litter 10.02 10.15 101.3 100.8 0.5 *Thousand head **Thousand litters Paragon Economics, Inc. From information, knowledge
  67. 67. Litter size growth back to 1.3% in Q3. . . . . . Trend has slowed a bit but still strong Paragon Economics, Inc. From information, knowledge
  68. 68. ‘13 slaughter will be slightly larger than ’12 . . . . But the pattern will be different Paragon Economics, Inc. From information, knowledge
  69. 69. Weights matched 5-yr avg in Q4 . . .. . . still 2+ lbs. lower, likely stay there thru Q2 Paragon Economics, Inc. From information, knowledge
  70. 70. YTD pork production was up 1.8% yr/yr . . . . . . And will be higher than ‘12 thru April Paragon Economics, Inc. From information, knowledge
  71. 71. Lower cutout value through Thanksgiving . . . . . . Usually the seasonal low – Hold $80? Paragon Economics, Inc. From information, knowledge
  72. 72. National Net hogs rallied from Sept swoon . . . . . . We still expect Q4 average of $78-$82 Paragon Economics, Inc. From information, knowledge
  73. 73. December slaughter forecasts December 2012 Hogs & Pigs -- Commercial Slaughter Forecasts Mizzou ISU LMIC Paragon Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge 2011 Q1** 27.483 -0.5% Q2 26.110 0.1% Q3 27.379 1.6% Q4* 29.888 0.9% Year 110.862 0.5% 2012 Q1 28.104 2.3% 28.104 2.3% 28.104 2.3% 28.104 2.3% Q2 26.659 2.1% 26.659 2.1% 26.659 2.1% 26.659 2.1% Q3* 27.963 2.1% 27.963 1.2% 27.963 2.1% 27.963 2.1% Q4** 30.400 1.7% 30.400 1.7% 30.400 1.7% 30.400 1.7% Year 113.126 2.0% 113.126 2.0% 113.126 2.0% 113.126 2.0% 2013 Q1* 27.762 -1.2% 27.739 -1.3% 27.704 -1.4% 28.292 0.7% Q2 26.811 0.6% 26.899 0.9% 26.242 -1.6% 26.892 0.9% Q3** 28.437 1.7% 28.299 1.2% 27.869 -0.3% 28.298 1.2% Q4 30.349 -0.2% 30.613 0.7% 30.207 -0.6% 29.860 -1.8% Year 113.359 0.2% 113.549 0.4% 112.022 -1.0% 113.342 0.2% Green figures are actual data from USDA. Blue figures are estimated using USDA data 1/1/13 *Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago Paragon Economics, Inc. From information, knowledge
  74. 74. Price forecasts December 2012 Hogs & Pigs - Price Forecasts Mizzou ISU LMIC Paragon CME Producer-Sold National Net Ia-Mn Wtd. Avg. National Wtd CME Lean Hog Net Price, All Negd Price, Base Lean Hog Avg. Base Price Futures Methods Wtd. Avg. 2011 Q1 80.54 78.92 79.74 80.91 81.54** Q2 92.36 89.37 89.53 94.89 93.97** Q3 95.59 92.31 92.25 97.61 97.49** Q4 87.39 85.94 85.17 87.92 88.11** Year 88.97 86.64 86.67 90.33 90.28** 2012 Q1 86.56 84.27 84.11 86.11 86.44** Q2 87.76 83.67 85.31 86.67 86.64** Q3 87.69 85.05 84.74 84.97 86.64** Q4 82.90 82 - 83 80.60 81.61 82.13** Year 86.20 84 - 85 83.69 84.84 85.46** 2013 Q1 82 - 86 85 - 87 83 - 87 84 - 88 85.25 Q2 89 - 93 89 - 92 86 - 91 88 - 92 93.07 Q3 88 - 92 90 - 93 89 - 94 90 - 94 94.45 Q4 80 - 84 84 - 86 81 - 86 83 - 87 84.31 Year 85 - 89 87 - 89 85 - 90 87 - 90 89.27 Green figures are actual data from USDA. Blue figures are estimated using USDA data **CME Lean Hog Index 1/16/13 Paragon Economics, Inc. From information, knowledge
  75. 75. The larger Dec sow herd was not a surprise. .. . . Slaughter: Low enough to suggest growth Paragon Economics, Inc. From information, knowledge
  76. 76. Gilt slaughter percent suggest even more. . .. . Lower than 5-yr avg all but 3 wks since Sept Paragon Economics, Inc. From information, knowledge
  77. 77. My model says finances are weak . . .. . . But lenders believe status is not this bad! Paragon Economics, Inc. From information, knowledge
  78. 78. Why are YOU holding on? Futures, esp. summer 2013 have offered near breakevens for the year -- survive Financial position is better than my ―cash‖ model suggests – risk management since 2008, lower costs than my model ―This is what I do‖ – no alternatives? Betting on rain – and the bets are HUGE - I don‘t see how many can survive a dry ‗13 - ―Massive‖ liquidation may finally come to pass Paragon Economics, Inc. From information, knowledge
  79. 79. Long-term issues Costs, costs, costs = Prices, prices, prices - Consumer incomes and spending - How much less meat/poultry/dairy consumed? Animal welfare – Chronic challenges - Stalls – not logical, making some headway - Castration, tail docking, - Ultimately: Indoor production Risk management skills Policy – farm bill, antibiotics Paragon Economics, Inc. From information, knowledge
  80. 80. Questions or Comments? Paragon Economics, Inc. From information, knowledge
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