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Q1 2020 Meat Market Outlook Webinar

In our first webinar of 2020, meat and livestock market experts, Dr. Rob Murphy and Kevin Grier are joined by esteemed beef analyst, Dave Weaber as they do a deep-dive into factors affecting the global protein markets such as:

ASF
US/China Phase One Trade Deal

Among other topics.

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Q1 2020 Meat Market Outlook Webinar

  1. 1. 1 Q1 BIG PICTURE OUTLOOK EVALUATING GLOBALPROTEINMARKETS 16 MONTHSINTOTHEASF CRISIS HOSTED BY: J.S. Ferraro DATE: January 22, 2020 Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. WEBINAR
  2. 2. 2 | An integrated sustainable food brand committed to creating the best-tasting fresh protein experience. Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. Providing market intelligence, risk management and customized supply chain solutions for the meat and livestock industry. ABOUT JSF
  3. 3. CO-HOST | DR. ROB MURPHY DR. ROB MURPHY, BS, MS, PhD Agri Economics Executive Vice President, Research and Analysis J.S. Ferraro www.jsferraro.com An agricultural economist and business leader with over 27 years in the industry, Dr. Rob Murphy has a wealth of experience in the North American meat and livestock industries studying, analyzing and predicting market movements. His expertise spans commodity analysis, econometric modelling, forecasting, futures markets, hedging, and risk management. Rob holds a Ph.D. in Agricultural and Applied Economics from Virginia Tech and has developed his market expertise over the past three decades by serving as an economist with the Chicago Mercantile Exchange, Sparks Companies and Informa Economics. At Informa, Rob held two senior leadership roles (Senior VP of Livestock, Meat, Dairy and Poultry group and Vice President) over 13 years. He focused on the development of risk management programs and directed the division’s work in commodity analysis in the protein sector. He has spoken internationally on many topics, including agri supply chain-development and international protein demand. Currently, Rob is the Executive Vice President, Research and Analysis at J.S. Ferraro & Co. leading the team in commodity analysis, financial modelling, and the development of trading and risk management strategies. 3 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  4. 4. CO-HOST | KEVIN GRIER KEVIN GRIER Market Analyst Kevin Grier Market Analysis & Consulting www.kevingrier.com Kevin Grier is a noted Canadian Agriculture & Food Market Analyst providing economic and market outlook for livestock, meat and grocery industries over the last 20+ years. His critical market insight and analysis helps his clients - from government and producer groups to small to large businesses - drive profitable bottom line decisions. Kevin is a regular contributor and respected expert across media platforms throughout North America - Global News, CTV, National Post, Globe & Mail, National Hog Farmer and Grocery Business. Kevin speaks with clarity on a range of topics including market analysis, economic impacts, consumer trends and commodity analysis. He provides regular commentaries on the market and is a national and international keynote speaker known for his approachable yet pragmatic style. His breadth of knowledge was developed over 18 years at the George Morris Centre, a leader in economic research in the agriculture and food industry. Prior to that Kevin was a manager with the Ontario Farm Products Marketing Commission, the supervisory body of the provincially regulated marketing boards. Currently, Kevin is managing director of Kevin Grier Market Analysis and Consulting, a company specializing in livestock, meat, poultry and grocery industry market insight and analysis working across a breadth of organizations internationally. 4 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  5. 5. GUEST SPEAKER | DAVE WEABER DAVE WEABER Vice President of Beef Analytics Express Markets Inc. http://www.emimarkets.com/ Dave joined EMI Analytics and Express Markets, Inc in April 2016 as Vice-President of Beef Analytics and is responsible for leading and growing the company’s efforts in beef supply chain analytics. This includes supply and demand side analysis and forecasting of cattle numbers and beef supplies as well as domestic and international trade impacts. Factoring in these variables and their combined effects to price forecasts for various classes of cattle and beef cuts, the group desires to assess margin impacts and shifts and strives to better the economic position clients in all areas of the supply chain. In 2019, he took on responsibility for managing the company’s broiler, turkey, egg, and pork analytics, as well as the sales and support staff. Before joining Express Markets, Inc, Dave served as Economist, leading the Market Insights Team in the Strategic Sourcing and Supply Chain Analytics Group of Delhaize America, the eleventh largest grocery retailer in the United States. In this role, Dave was responsible for analysis and strategy guidance in the meat, poultry, dairy, grains and vegetable oil commodities as well as commodity risk assessment and management for the banner stores from 2007 to early 2016. From February 2005 through March 2007, Dave was employed by Swift & Company as Director of Market Analysis. He was responsible for market research and forecasting in the cattle, beef, hog and pork markets as well tracking changes in the other commodity and competing meat markets. Dave also worked in the analysis of foreign markets and trade. Prior to joining Swift & Company, Dave spent seven years at Cattle-Fax, most recently in the position of Director of Research and Special Projects where he was responsible for analysis of Cattle-Fax feedlot inventory data, short and long term projections, special research projects and supervising the Research Department. 5 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  6. 6. 1. MARKET OUTLOOK | HOGS & PORK • US Market – 3 Factors Impacting Supply, Demand and Pricing • Canadian Market Insights • Speaker Panel Discussion 2. MARKET OUTLOOK | CATTLE & BEEF • US Market – 3 Factors Impacting Supply, Demand and Pricing • Canadian Market Insights • Speaker Panel Discussion 3. LIVE Q&A DISCUSSION OUTLINE 6 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  7. 7. WEBINAR REMINDERS Type questions in the chat box in your ClickMeeting control panel. 60 min session + 10 min Q&A Need to drop off early? You can email our panelists directly. Please feel free to connect/follow us and our speakers on LinkedIn OR Twitter. TIMING: QUESTIONS: SESSION SLIDES: CONNECT: Session recording and slide deck will be available 24-48 hours after the session. TECHNICAL DIFFICULTIES: Use the chat function for help or email us at: Robin.Dhanju@jsfgroupinc.com All microphones will be muted for the session. 7 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  8. 8. • SUPPLY, DEMAND & PRICING • 3 THINGS TO WATCH FOR IN 2020 Q1 BIG PICTURE MARKET OUTLOOK HOGS & PORK | US 8 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  9. 9. • US pork exports to China and Hong Kong surged in November to 165 million pounds. • This strong movement is likely tied to Chinese New Year’s celebrations which start on Jan 25. • December exports are expected to be less than November, however. • Total pork exports in November were 623 million pounds, a new monthly record. • JSF is forecasting strong pork exports throughout 2020, up 19% from last year. • Futures continue to price hogs as though 2020 pork exports will be up close to 50%. 9 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. EXPORTS STRONG AHEAD OF CHINESE NEW YEAR
  10. 10. • November is the most recent month for which complete data exists to calculate per capita consumption. • Since that calculation removes exports, it can provide a picture of US domestic pork demand. • Domestic demand looked very strong in November. • Early indications suggest December and January were a bit weaker with respect to domestic demand. DOMESTIC DEMAND STRONG IN NOVEMBER 10 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  11. 11. • Another tool we use to gage overall demand is the combined producer + packer margin. • When demand is very strong this combined margin will be high, reflecting the idea that wholesale prices strengthen to a level capable of generating good margins for both segments. • The last demand cycle peaked in November and has been softening since. • Look for demand to turn higher with the next 30 days. 11 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. PORK SUPPLY CHAIN MARGINS POINT TO GOOD DEMAND
  12. 12. • The breeding herd is the production engine that fuels future pork supplies. • It has been steadily increasing over the past five years. • On Dec 1, the USDA reported the breeding herd up 2.1% from last December. • The most recent pig crop, born in the Sep/Nov quarter was up almost 2%. • These are hogs that will be slaughtered in the March- May period of 2020. 12 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. PIG HERDS CONTINUE TO GROW IN THE US
  13. 13. +4.2% +3.8% +2.9% • With ever-increasing breeding herd and pig crops, hog slaughter in 2020 is almost sure to exceed 2019. • JSF projects 2020 barrow and gilt slaughter up 3.1% from last year. • The biggest YOY increase should come in Q2, but every quarter should register a gain. • Note that the quarterly percentage changes have been adjust to reflect the fact that 2020 is a leap year and Q1 contains 1 additional day than in prior years. B&G SLAUGHTER BY QUARTER, 2018-2020 13 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  14. 14. • Weights should be mostly flat until about May when they start to decrease heading into summer. • The removal of ractopamine from production systems has the potential to cause a temporary dip in weights. • By de-trending and de-seasonalizing (DTDS) carcass weights, we can get a picture of the “irregular” component of weights. • Values of the DTDS close to zero or above can signal hogs backing up in the pipeline. 14 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. DTDS WEIGHTS SHOW NO SIGNS OF CURRENTNESS ISSUES
  15. 15. +4.0% +5.5% • Pork production is the product of the number of animals killed and their weight. • Q1 could easily see a 5.5% YOY increase in total pork production. • For 2020 as a whole, JSF has pork production forecasted to be up 4.3%. • Since pork demand is very inelastic, small amounts of additional production can have a large negative influence on price levels. +4.5% PORK PRODUCTION BY QUARTER, 2018 - 2020 15 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  16. 16. • JSF forecasts the pork cutout to hold in the mid to high $70s through February before working higher seasonally. • The summer price top should be in the upper $80s, up about $4 from last year. • If exports fail to live up to expectations, there is a lot of downside risk to these forecasts. • In Q1, all primals except bellies are expected to see YOY price increases. • Hams are seeing very good export interest • Large cold storage stocks will likely keep the bellies at or below last year’s level in Q1. 16 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. PORK CUTOUT REMAINS STRONG WITH TOPS IN THE $80 RANGE
  17. 17. • Packer margins are running just a tad above last year and should remain close to last year through Q1. • JSF forecasts average packer margins for all of 2020 to be close to $12.50, down about $2 from 2019. • JSF sees cash hog prices rising slowly from current levels and remaining above last year through March. • Q2 hog pricing should be below last year, but Q2 of 2019 was inflated by the futures market surge on ASF fears. • Summer price tops around $80 are forecast. 17 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. CASH HOGS VALUES TO OUTPERFORM IN Q1
  18. 18. • Deferred lean hog futures have kept a large “ASF premium” built in. • Traders are anticipating huge exports to China. • In the last 5 futures expirations futures have been forced lower into expiration in order to converge with the under- performing cash market. • All of the lean hog futures on the board are currently trading “too rich” relative to the JSF fundamental forecast. • Caution is warranted however because the distant JSF forecasts are based on pig crops that haven’t happened yet. 18 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. FUTURES REMAIN TOO RICH
  19. 19. 1. US Pork Exports: China will need to take an incredible amount of pork out of the US if hog and pork prices are to achieve the levels currently indicated by the futures market. 2. Amount of Expansion in the U.S. Hog Herd: Producers could begin to add sows at a faster- than-expected rate. This supply response has the potential to weigh heavily on hog and pork prices in the second half of 2020. 3. Signs of further weakening in the US and global economies: The global economy is already slowing and the US economy could get caught up in that also. Recession tends to hurt meat demand, and while it might impact beef more than pork, pork demand would not escape a recession unscathed. 3 THINGS TO WATCH FOR IN 2020 19 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  20. 20. • INSIGHTS Q1 BIG PICTURE MARKET OUTLOOK HOGS & PORK | CAD 20 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  21. 21. CDN QUARTERLY HOG SLAUGHTER 2018-2020 • Q4 +1% • Q1 +1% • Q2 +2% 21 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  22. 22. CANADIAN PORK CUTOUT 2019 AND 2014-2018 AVERAGE 22 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  23. 23. WEEKLY CANADIAN PORK WHOLESALE PRICE DIFFERENTIAL TO BEEF AND CHICKEN VS 2017-2019 AVG 23 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Nov 16 Nov 23 Nov 30 Dec7 Dec14 Dec21 Dec28 Jan 4 Jan 11 Jan 18 PriceDifferential Pork-Beef Pork-Chicken
  24. 24. Q3 RETAIL PORK MARGINS VS 2017-2019 AVERAGE 24 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  25. 25. PORK SUMMARY POINTS • Gradual increases in production • Questions on availability 25 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  26. 26. Q1 BIG PICTURE MARKET OUTLOOK PANEL DISCUSSION 26 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  27. 27. • MARKETS OVERVIEW • 3 THINGS TO WATCH FOR IN 2020 Q1 BIG PICTURE MARKET OUTLOOK CATTLE & BEEF | US 27 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  28. 28. LONG STANDING DROUGHT CONDITION IN AUSTRALIA HAS LED TO FIRES BURNING MORE THAN 15 MILLION ACRES (SIZE OF WV). • About 9% of Australian cattle herd in in areas significantly affected by fires and another 11% in regions partially affected. • Impacting about 80,000 properties in the main affected regions. • Most active fires near coastal regions of Victoria and New South Wales. • Near record Australian COF in late 2019, but reports of water shortages affecting feedlots continue. • Australian exports +9% in ’19. Exports to China nearly double in ‘19 vs ’18. • YTD slaughter thru October was up 7%. Females +18%. Beef production +4% 28 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. Images courtesy USMEF and MLA
  29. 29. SLAUGHTER NUMBERS • Beef cow slaughter surges higher, largest weekly slaughter since late 2012 (near liquidation pace) • ’19 beef sltr +5.4% (+4.5 in Nov) • Dairy +2.0%, Total +3.6% • ‘19 Heifer slaughter +6.9% • Steer slaughter -2.3% (- 1.5% 5 mo. Ago) • Fed slaughter +1.0% 29 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  30. 30. BEEF REPLACEMENT & COW INVENTORY • Beef replacement peaked Jan 1, 2017, 2018 -4.1%, 2019 -3%, 2020 -4% (5.69 mil hd • Beef cow inventory expected to decline slightly Jan 1, 2020 at 31.735, -31K hd vs YA • Total cattle inventory expected lower as slight liquidation underway for beef and dairy cow herds • Inventory on Jan 1, 2020 expected at 93.868 mil hd, -1% 30 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  31. 31. • COF remains above YA, Jan 1 +1.7%, Dec placements even • Marketings +5.5% • Dec ‘19 one more day vs. YA • Jan-Mar placed against +2.1% (Jan -4.4%, Feb +7.3%, Mar +3.6%) 31 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. PLACEMENTS POTENTIALLY LARGER IN JANUARY
  32. 32. • Slaughter 2019 +1.7% or +543 hd to 33.548 mil. Hd • 2020 +1.6% or +552K to 34.070 mil. Hd • Beef production ‘19 +1.1%, ‘20 +2.4% 32 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. SLAUGHTER TO INCREASE 1.6% IN 2020
  33. 33. NOVEMBER EXPORTS & IMPORTS November exports -8.2% • Mexico -8.2% • Japan -13.9% • South Korea -5.3% • Canada -14.8% • China +18.6% @ 3.17 million pounds cwe, 1.3% of total exports November imports +11.5% • Australia +3.5% • New Zealand -39.7% • Mexico +11.0% • Canada +11.8% • Brazil +43.4% 33 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  34. 34. 34 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. • 2019 packer gross margins $425/hd • Up $50/hd from 2018 • 2020 YTD $233.50/hd - $65/hd vs. YA BEEF PACKER MARGINS WERE HUGE IN 2019
  35. 35. 35 | • Basis narrowing/futures stall, shift underway> • ‘19 avg $116.90/cwt • ‘20 ~$115.50 • Cutout finds support as Saturday hours being eliminated • ‘19 avg $222.60/cwt • ‘20 avg ~$219/cwt • Ch-Se spread narrows BASIS NARROWING
  36. 36. 36 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. • 50CL rebounds seasonally but limited by heavier fed weights • 90CL prices supported at $240 likely to increase as increased cow slaughter can’t offset limited imports from Australia and New Zealand TRIM REMAINS TIGHT
  37. 37. 1. Trim Market Risk: Australia’s record drought and bush fires are limiting potential slaughter and beef production as Australia’s cow herd shrinks to 30 year lows. Chinese demand for lean grass fed product will support 90CL trim in the world market and in US. Phase 1 deal potential for US lean cow beef and cuts exports versus fed beef. Trim support could spill into end cuts as grinding demand. 2. Contraction in the U.S. Beef Herd: During 2019, producers appear to have marketed enough beef cows and heifers to signal the beginning of the liquidation phase of the US beef cattle cycle. Poor reproductive performance and lack of profitability at the ranch level are key drivers. Adding more heifers to fed slaughter mix likely to continue and limit upside potential for US beef and fed cattle prices. 3. Phase 1 works to eliminate non-tariff trade barriers: The recent Phase 1 trade deal moves the US closer to broader shipments of US beef to China. It sets residue levels for the three most common products that had caused China to compete with natural beef programs for cattle. Also potential to accept ractopamine and unclear on current source verification requirements. 3 THINGS TO WATCH FOR IN 2020 37 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  38. 38. • INSIGHTS Q1 BIG PICTURE MARKET OUTLOOK CATTLE & BEEF | CAD 38 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  39. 39. CDN QUARTERLY CATTLE SLAUGHTER 2018-2020 • Q4 +4% • Q1 +3-4% • Q2 +2% 39 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  40. 40. CANADIAN BEEF CUTOUT MONTHLY 2019 AND 2014- 2018 AVG 40 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  41. 41. BEEF WHOLESALE PRICE DIFFERENTIAL WEEKLY NOV- JAN 41 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  42. 42. RETAIL BEEF MARGINS VS 2017-2019 AVERAGE OCT-JAN 42 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  43. 43. CHRISTMAS ADS 43 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  44. 44. BEEF SUMMARY POINTS • Production continues higher • Pricing becomes more competitive 44 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  45. 45. • INSIGHTS Q1 BIG PICTURE MARKET OUTLOOK CHICKEN & POULTRY | CAD 45 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. • Most competitive • Best margins • Increasing merchandising focus
  46. 46. Q1 BIG PICTURE MARKET OUTLOOK PANEL DISCUSSION 46 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  47. 47. Q1 BIG PICTURE MARKET OUTLOOK Q & A SESSION 47 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. ? ? ?
  48. 48. You can email our panelists directly at: • dweaber@emianalytics.com • Rob.Murphy@jsferraro.com • Kevin@KevinGrier.com Please complete our brief survey to help us continue to shape great discussions. ADDITIONAL QUESTIONS: SESSION SLIDES: SURVEY: Session recording and deck will be emailed to registered participants 24-48hrs after the session. Please feel free to connect/follow us and our speakers on LinkedIn OR Twitter CONNECT: 48 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. THANK YOU
  49. 49. We provide members of the meat & livestock industry with complimentary intelligence to make smarter procurement decisions. As part of our service suite, access: Red Meat Outlook: monthly market intelligence reports for both Cattle & Beef and Hogs & Pork markets; Big Picture Market Outlook: quarterly market outlook webinars featuring prominent North American meat & livestock analysts; Market Alerts and more! Subscribe Now 49 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution. JSF MARKET INTELLIGENCE SERVICES
  50. 50. NAVIGATE YOUR SUPPLY CHAIN WITH CONFIDENCE A provider of innovative risk management solutions, specializing in meat & livestock.“ At J.S. Ferraro & Company we combine our experience in the derivatives markets, expertise in econometrics and over 30 years in the cattle and hog industry to help our clients lead the herd, manage their risk, and maximize their margins. Progressive thinking and precise quantitative modelling are the cornerstones of our margin management solutions. 50 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  51. 51. THANK YOU J.S. Ferraro 130 Adelaide Street, Suite 810 Toronto, Ontario M5H 3P5 CANADA (416) 306-8787 hello@jsferraro.com | www.jsferraro.com 51 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.
  52. 52. Q1 BIG PICTURE MARKET OUTLOOK APPENDIX 52 | Confidential. © Copyright J.S. Ferraro. All Rights Reserved, 2020. Not for distribution.

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