Meat Sector Situation and Outlook

From information, knowledge
Paragon Economics, Inc.
Steve R. Meyer, Ph.D.
Pork Management Conference – June 2014
Meat Sector Situation and Outlook

Current situation is the culmination . . .
 Quantum upward shift of grain prices in
2007 – directly attributable to biofuels
 The Great Recession and its impact on
demand -- foodservice/retail split
 Drought conditions in cow/calf areas for
much of the past decade – and 2011-12!
 History catches up with the 2012 crop
 PEDv
12/21/2017 2
. . . of along series of events/mishaps

Key Issues for 2014 and beyond
 Costs: Are The Bad Times Really Over
For Good?
12/21/2017 3

World corn prod & cons are record high. . .
6/20/2013 4
. . stocks are highest since ‘00 – and growing

U.S. biofuels policy fueled growth and . . .
6/20/2013 5
. . . world competition in corn will continue

World soybean supply situation is similar . . .
 World output +6.2% in ‘13-’14
 Consumption +4.4%
 Ending stocks +20%, S/U tied for 3rd high
. . . Record high output, consumption, stocks

SB prices will remain stronger than corn . . .
. . . largely due to China’s appetite & means

Quantum downward shifts for corn & beans!
 Note relative drop in corn vs. SBM –
disadvantage to poultry first, then hogs
 Planting risk, SB competition premiums are
gone from corn – some weather risk remains
12/21/2017 8

‘14 costs will be $80-82 as half of year is in. . .
12/21/2017 9
. . . ‘15 costs <$80 – expect more in $70-$80

 Grain Prices and Costs – Are The Bad
Times Really Over For Good?
 Demand – Can We Make This Last?
12/21/2017 10

Data Source: U.S. Bureau of Economic Analysis
U.S. economy is still slow – but growing yr/yr!
. . . Q1 was LOWER than Q4-13 though – Weather?
12/21/2017 11

Some decent employment gains in 2013 . . .
12/21/2017 12
. . . Jan slowed but Feb, Mar & April are >200k

Data Source: Bureau of Labor Statistics
Unemployment is falling -- 6.3% in April . . .
. . . U-6 is down to 12.3% but was 10% in 2008
12/21/2017 13

2013 RPDI growth averaged 0.1% . . .
. . . January was good but growth has slowed
12/21/2017 14

Per cap cons.: -10% vs. ‘04, flat thru ’15 . . .
12/21/2017 15
. . . But this is a function of PRODUCTION!

The evidence of strong demand is PRICES . . .
. . . Records set in 2013 and already in ‘14 with more to come
12/21/2017 16

Demand indexes were ALL higher for 2013!
12/21/2017 17
. . . First time that has ever happened

Meat/Poultry RPCE was higher all of 2013
12/21/2017 18

January meat/poultry RPCE was soft . . .
12/21/2017 19
. . . Feb was better and March was very good

March was a positive yr/yr month . . .
12/21/2017 20

Consider the determinants of demand. . .
 Incomes
- More money = more quantity purchased for
“normal” goods
- But incomes are stagnant
 Prices of competitors and complements
- Meat prices rose more than CPI in 2013
- Beef lost, chicken gained, pork was a wash
 Only factor left is consumer tastes and
preferences
12/21/2017 21

And things are MUCH better for fats . . .
12/21/2017 22
. . . protein is in, carbs are out

“People will stop eating pork/beef at these prices!”
 Some will stop and some will eat less BUT
THEY MUST because less is available
 Habits, though, are important!
12/21/2017 23
Price
Quantity/Time
P2
P1
Q1Q2
D
S1
S2

Pork exports exploded in March . . .
. . . Fell 12% in April but still +10% yr/yr & YTD
12/21/2017 24

Big April story was the sharp drop for China/HK
. . -25% yr/yr, Canada & Japan +12%, Korea +90%
12/21/2017 25

 Grain Prices and Costs – Are The Bad
Times Really Over For Good?
 Demand – Can We Make This Last?
 Competitors – Will Anyone Take Advan-
tage of the Situation? Can They?
12/21/2017 26

Old flock = fewer, lower quality eggs . . .
12/21/2017 27

Slaughter, production are UNCHANGED vs. ‘13. . .
12/21/2017 28

Chicken prices are MUCH better = PROFITS! . . .
12/21/2017 29

Beef herd: Full expansion mode IF POSSIBLE
 Will range/pasture conditions be good enough in
critical areas???
12/21/2017 30

Jan Cattle report: Expansion begins . . .
12/21/2017 31
2013 2014
Pct of Yr
Ago
Average Range
All Cattle & Calves 89,300 87,730 98.2 98.6 98.0 - 99.1
Cows & Heifers That Have Calved 38,515 38,251 99.3 98.9 98.7 - 99.3
Beef Cows 29,297 29,042 99.1 98.5 98.3 - 99.1
Dairy Cows 9,218 9,209 99.9 99.9 99.8 - 100.0
Heifers 500 Pounds & Over 19,134 18,751 98.0 99.0 97.9 - 99.6
Beef Cow Replacements 5,381 5,471 101.7 103.1 102.4 - 103.5
Dairy Cow Replacements 4,551 4,539 99.7 100.3 98.9 - 101.1
Other Heifers 9,203 8,741 95.0 95.9 93.2 - 97.1
Steers 500 Pounds & Over 15,813 15,415 97.5 98.4 97.3 - 99.6
Bulls 500 Pounds & Over 2,056 2,035 99.0 99.0 98.4 - 99.7
Heifers, Steers & Bulls Under 500 Pounds 13,782 13,278 96.3 97.9 97.0 - 99.1
January 1 Cattle On Feed, All Feedlots 13,364 12,695 95.0 95.0
Rev 2012 2013
Calf Crop 34,279 33,930 99.0 97.9 97.7 - 98.1
Source: USDA National Agricultural Statistics Service, Urner Barry
Pre-Report Estimates*
JANUARY 1, 2014 -- U S CATTLE INVENTORY

. . . Feeder supply is down 3%, yr/yr – record low
12/21/2017 32
Livestock Marketing Information Center
Data Source: USDA-NASS
Placements are coming from a TIGHT supply

Feb placements were +15%, March and April were -5%
12/21/2017 33

Beef consumption/supply will be -5.3% yr/yr . . .
12/21/2017 34
. . . And down another 3% in 2015!
Livestock Marketing Information Center
Data Source: USDA-NASS

RECORD-HIGH cutout values – again this week!
 Weekly averages have returned to $220s
 We expected $215-$225 for cutouts thru June
– but Choice was $232 last week!
 Pork prices are now HELPING beef
12/21/2017 35

March H&P: Bearish vs. expectations!
12/21/2017 36
Inventories on March 1*
All hogs and pigs 65072 62899 96.7 94.6 2.1
Kept for breeding 5836 5851 100.3 99.4 0.9
Kept for marketing 59236 57048 96.3 94.1 2.2
Under 50 lbs. 18852 18101 96.0 93.5 2.5
50-119 lbs. 16251 15717 96.7 94.2 2.5
120-179 lbs. 13169 12793 97.1 94.1 3.0
180 lbs. and over 10965 10436 95.2 95.2 0.0
Farrowings**
Dec-Feb sows farrowed 2,788 2,867 102.8 100.0 2.8
Mar-May Intentions 2,816 2,884 102.4 100.5 1.9
June-Aug Intentions 2,902 2,960 102.0 100.9 1.1
Dec-Feb Pig Crop* 28,099 27,316 97.2 96.4 0.8
Dec-Feb pigs saved per litter 10.08 9.53 94.5 96.4 -1.9
*Thousand head ** Thousand Litters Source: Urner Barry
Category 2013 2014
'14 as
Pct of
'13
Pre-
Report
Est's
Actual -
Est
USDA QUARTERLY HOGS & PIGS REPORT
March 28, 2014
. . . But definitely picked up some PEDv impact

Monthly data – BIG drop in litter size but . . .
12/21/2017 37
. . . a slight (curious) improvement for Feb

The devil is in the details, though . . .
 March H&P would put quarterly 2014 slghtr totals
down 2.1, 3.4, 4 and 2.9% yr/yr.
- IMPLICATION: Higher weights would leave ‘14
production very near 2013 levels
 March slaughter was down 6.7% while 180+
inventory was down 4.8%
- AND SEP-NOV PIG CROP WAS UNCHANGED
 Dec-Feb pig crops in MN, IA and IL were + 5, +2
and +3% yr/yr IN SPITE OF WIDESPREAD PEDV
LOSSES
12/21/2017 38

Latest PEDv info – thru June 7 – shows improvement
 U.S.: new low of 138 wk. ended 5/7
 IL & MN have seen big declines
 Will IA decline (to just 20!) last??
12/21/2017 39

Used suckling pig cases to distribute . . .
12/21/2017 40
. . . total pig losses over time

April data still imply HUGE Jul-Sep cuts . . .
 Assumes 58% of sows infected
 2.7 pigs lost per sow -- conservative
 Total loss is now near 8 million pigs
12/21/2017 41
PIG LOSS COMPUTATIONS PCT OF PRIOR YR. SLGHTR ADJUSTMENTS
Birth
Month
Monthly
Share
Small Farm
Adjustment
Pigs lost,
thousands
Slaughter
Month
Slghtr Yr
Ago +2.5%
Percent
Change
Cull
reduction Sows
Non PED
productivity
TOTAL
CHANGE
May 4.16% 274.50
Jun 6.51% 492.04 Dec 9705.8 -5.07% 1.00% -1.00% 2.00% -3.07%
Jul 3.62% 336.35 Jan 10205.3 -3.30% 1.00% -1.00% 1.90% -1.40%
Aug 4.52% 352.62 Feb 8806.0 -4.00% 1.00% -1.00% 1.80% -2.20%
Sep 3.62% 306.51 Mar 9549.1 -3.21% 1.00% -1.00% 1.80% -1.41%
Oct 7.05% 519.71 Apr 9592.3 -5.42% 1.00% -1.00% 1.70% -3.72%
Nov 4.52% 404.16 May 9440.7 -4.28% 1.00% -1.00% 1.50% -2.78%
Dec 7.23% 545.21 Jun 8401.1 -6.49% 1.00% -1.00% 1.30% -5.19%
Jan 11.75% 90% 884.27 Jul 9304.3 -9.50% 1.00% -1.00% 1.25% -8.25%
Feb 19.89% 90% 1489.15 Aug 9794.2 -15.20% 1.00% -1.00% 1.20% -14.00%
Mar 16.27% 90% 1372.51 Sep 9249.5 -14.84% 1.00% -1.00% 1.15% -13.69%
Apr 10.85% 90% 960.22 Oct 10680.5 -8.99% 1.00% -1.00% 1.10% -7.89%

Rabobank makes me look like an OPTIMIST!
12/21/2017 42

Actual slaughter declines have been larger
12/21/2017 43
. . . Partially due to delayed mktg/higher wts
TOTAL
CHANGE
Slaughter
Month
Total
Slaughter
Pct. Chng.,
yr/yr
Barrow/Gilt
Slaughter
Pct. Chng.,
yr/yr
-3.07% Dec 9730.1 -2.14% 9397 -2.01%
-1.40% Jan 9791.2 -1.66% 9459 -1.39%
-2.20% Feb 8668.2 0.90% 8366 1.10%
-1.41% Mar 8674.6 -6.89% 8356 -6.92%
-3.72% Apr 8855 -5.38% 8527 -5.32%
-2.78% May 8560 -2.64%
-5.19% Jun
-8.25% Jul
-14.00% Aug
-13.69% Sep
-7.89% Oct
CHECK AGAINST ACTUAL SLAUGHTER

UM survey of 16 systems – 58% of herds pos.
12/21/2017 44

Same number of herds in March as Oct ???
12/21/2017 45
. . . Does that mean Sept will be like April???

But consider . . .
 The 9 named systems had 741,300 sows
according to SF’s ‘13 Powerhouses
- Only Christensen, Seaboard and ISF are
among the top 10
 The other 7 must have roughly 1.76 mil-
lion sows – and must all be in the top 10
 Geographic locations imply that the UM
sample has high proportion in NC and OK –
and roughly one-third in Midwest
12/21/2017 46

If Midwest incidence is the same . . .
12/21/2017 47
Total MW cases
National cases
with new MW
number

U.S. sow slaughter is down 6.0% YTD . . .
 94k sounded like a lot of growth from Dec
through Feb but the females were available
 Immune sows have value – an incentive to
keep them!!!
12/21/2017 48
. . . Gilt share of slaughter mix surged in April ?

Bigger hogs is a trend, but these increases . . .
12/21/2017 49
. . . are unusual, as were steady wts. of ‘07-’08, ’12

Cutout and hog values have likely TOPPED . . .
 Year-ago prices were too low — Russia, China
 Summer highs were originally expected at $105-
$110
 I’m still at $120-$125 given PEDv losses
12/21/2017 50
. . . Peaks at $130+ were too high – time rationing?

Slaughter forecasts – per accession data . . .
12/21/2017 51
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2013 Q1 27.870 -0.8%
Q2 26.778 0.4%
Q3 27.668 -1.1%
Q4 29.808 0.8%
Year 112.124 -1.0%
2014 Q1 27.134 -2.6% 27.134 27.134 -2.6% 27.134 -2.6%
Q2 25.420 -5.1% 25.787 -3.7% 25.572 -4.5% 25.020 -6.6%
Q3 26.147 -5.5% 26.423 -4.5% 26.285 -5.0% 24.980 -9.7%
Q4 28.817 -3.3% 29.540 -0.9% 29.952 0.5% 28.300 -5.1%
Year 107.545 -4.1% 108.884 -2.9% 109.023 -2.8% 105.434 -6.0%
2015 Q1 27.921 2.9% 27.934 2.9% 26.800 -1.2%
Green figures are actual data from USDA.. Blue figures are estimated using USDA data 4/28/14
March 2014 Hogs & Pigs -- Commercial Slaughter Forecasts
Mizzou ISU LMIC Paragon
. . . And some allowance for March H&P report

Weekly forecasts – me and USDA and USDA . .
12/21/2017 52
. . . Has been VERY good 5 of past 7 weeks

Actual, USDA and Paragon only . . .
12/21/2017 53

Price forecasts as of March Hogs & Pigs . . .
12/21/2017 54
Mizzou ISU LMIC Paragon CME
Producer-Sold
Net Price, All
Methods
Ia-Mn Wtd. Avg.
Base Lean Hog
National Wtd
Avg. Base Price
National Net
Neg'd Price,
Wtd. Avg.
CME Lean Hog
Futures
2013 Q1 83.53 80.83 81.08 82.73 83.34**
Q2 91.80 88.06 89.32 90.83 90.66**
Q3 97.90 94.34 95.25 98.00 98.98**
Q4 84.99 82.57 82.98 85.26 83.93**
Year 89.56 86.45 87.16 89.21 89.23**
2014 Q1 93.10 91 - 92 92.44 94.91**
Q2 115 - 125 122 - 128 120 - 125 108 - 112 116.86**
Q3 111 - 121 110 - 118 120 - 127 116 - 120 126.08
Q4 90 - 100 90 - 95 86 - 95 94 - 98 103.39
Year 102 - 110 104 - 110 102 - 106 109.15
2015 Q1 81 - 91 84 - 95 95 - 98 91.95
Green figures are actual data from USDA. Blue figures are estimated using USDA data **CME Lean Hog Index 6/20/14
March 2014 Hogs & Pigs -- Price Forecasts

Closing thoughts . . .
 PEDv is not just a short-term hit
- No proven effective vaccine in sight
- What about NEXT winter?
- When does the industry decide to build
production capacity to overcome PEDv?
- What happens when a solution is found?
 Beef per cap supply/consumption will be
permanently smaller
 Chicken output/consumption could make
another quantum leap
12/21/2017 55

Questions or Comments?
12/21/2017 56

Meat Sector Situation and Outlook

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