Livestock & Poultry Economic Outlook - Dr. Steve Meyer, Express Markets, from the 2016 Iowa Pork Congress, January 27-28, Des Moines, IA, USA. More presentations at http://www.swinecast.com/2016-iowa-pork-congress

1. Steve R. Meyer, Ph.D.
Vice-President, Pork Analysis
EMI Analytics
Iowa Pork Congress – January 2016
Livestock & Poultry Economic Outlook

2. Key factors for 2016 . . .
 Lowest costs since 2007 – Good crops!
 PEDv cases on the rise but have moder-
ated – much like last year? PRRS?
 HPAI case in Indiana – first one since June
 MCOOL is gone – what about imports?
 Demand: Three good years but what now?
 Pork industry productivity is surging
 Exports with a still-strong U.S. dollar?
 World competition?

3. Macro conditions continue positive, not robust
 Civilian unemployment remains at 5%
 Dec U6 rate = 9.9%, up 0.1% from Oct
 Q3 Real GDP growth stayed above 2% for
both yr/yr and annualized qtr/qtr
 December employment was +292k, fol-
lows Nov +252k, Oct +307k, ‘16 +2.65 mil
 Oil below $30: Bad for Exxon, Haliburton,
steel, etc. but good for energy users
 Higher (barely!) interest rates but has the
Fed over-played even that small increase?

4. Meat/poultry demand has been on a GREAT run!
. . . But November was -2.9% yr/yr, YTD is still +5.7%

5. PRICE is the evidence of higher demand . . .
. . All set records in 2013-14 and are still close

6. Demand/RPCE: Pork is steady, beef lower in Nov

7. GRAIN PRODUCTION/PRICES
and
COSTS OF PRODUCTION

8. 0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
MillionMetricTons World Coarse Grain Stocks
China United States Argentina Brazil EU 27 Other
“Comfortable” world stocks have been restored

9. Corn basically in the $3.50-$4.00 range thru ‘17

10. 0
50
100
150
200
250
300
1980 1985 1990 1995 2000 2005 2010 2015
MillionMetricTons
World Soybean Production
Source: USDA
US Brazil Argentina China ROW
2015 Forward Forecast
Record world SB output in ‘14 and ’15, down in ‘16

11. Sharply lower SBM prices – good for birds, pigs!

12. Grain prices imply lowest hog costs since ‘07 . . .
. . . With best operations will be at $61-$63 carcass

13. CATTLE AND BEEF

14. Cow-calf returns will be “only” $200/hd in ‘16
Data Source: USDA & LMIC, Compiled by LMIC
Livestock Marketing Information Center

15. +6.5 %
Sharp increase in heifers held as replacements!
+6.5 %
Data Source: USDA-AMS
Livestock Marketing Information Center

16. Data Source: USDA-AMS & USDA-NASS
Livestock Marketing Information Center
Major result: MUCH lower heifer slaughter . . .

17. Data Source: USDA-AMS & USDA-NASS
Livestock Marketing Information Center
Record-high feeder cattle prices caused . . .
. . . VERY slow replacement and HUGE cattle!

18. Data Source: USDA-AMS
Livestock Marketing Information Center
Weights plus higher numbers pressured prices

19. As did drop values
Data Source: USDA-AMS
Livestock Marketing Information Center

20. And Friday’s COF report was mildly bearish . . .

21. Beef prod will gain 2% in ‘16, and another 4% in ‘17
Data Source: USDA-AMS
Livestock Marketing Information Center

22. Fats in $130s, FC $155-$165, Calves near $200
Data Source: USDA-AMS
Livestock Marketing Information Center

23. POULTRY

24. HPAI diagnosed in Indiana turkeys last week
 Dubois County – 60,000 birds on the site
 NEW strain (H7N8) – ’15 strain was H5N2
- Appears to be of North American origin
- One case of High Path – others are Low Path
 ~250k turkeys, 156k layers euthanized
 No new cases since last weekend!
 NOT KNOWN TO AFFECT HUMANS
 Exports from Indiana will be banned

25. Broiler hatcher flock grew by 3% in ’15 . . .

26. ‘15 broiler prod was +4% -- next 2 yrs +1.2 & 1.6%

27. Big growth in chicken available in ’15 -- slowing

28. Lower chicken prices – BUT NOT sharply lower!

29. Assuming no HPAI – 4.7% growth for turkey in ‘16

30. And a major rebound for exports . . .

31. Turkey prices will still be higher than any but ‘15

32. HOGS AND PORK

33. U.S. dollar: A new “recent” high of 100.6, early Dec.
 Fed rate hikes will keep dollar strong
- December hike did little – it was expected
- What about the coming 2 or 3 or 4 in ‘16?
 Fed HAS to do this – it has no bullets!

34. Pork exports suffered in last ‘14 and early ‘15. . .
. . . YTD is now UP 1.1% -- 2015 will finish up 2-4%

35. Jan Cold Storage – bullish for pork, bearish others

36. BIG reduction in hams, all pork – lots of ribs

37. PEDv: Some sow herd breaks in UM data – not bad
 Data from 995 sow farms, 24 of 26 systems reporting, 2.533 mil. sows!
 18 sow farms broke in 4 weeks ending 11/28 – only 8 since then!
 Consensus among vets: ‘15-’16 will be slightly WORSE than ‘14-’15

38. Dec H&P report was much as expected - neutral. . .
. . .’16 much like ’15 but Q4 could be huge
Inventories on Dec 1
All hogs and pigs 67,776 68,299 100.8 101.4 -0.6
Kept for breeding 5,939 6,002 101.1 100.9 0.2
Kept for marketing 61,838 62,297 100.7 101.5 -0.8
Under 50 lbs. 19,801 19,508 98.5 99.6 -1.1
50-119 lbs. 17,366 17,282 99.5 100.4 -0.9
120-179 lbs. 13,000 13,210 101.6 101.4 0.2
180 lbs. and over 11,671 12,296 105.4 105.3 0.1
Farrowings
Sep-Nov sows farrowed 2,994 2,875 96.0 98.1 -2.1
Dec-Feb Intentions 2,895 2,840 98.1 99.6 -1.5
Mar-May Intentions 2,854 2,850 99.9 100.5 -0.6
Sep-Nov Pig Crop 30,633 30,271 98.8 99.7 -0.9
Sep-Nov pigs saved per litter 10.28 10.53 102.4 101.6 0.8
*Thousand head ** Thousand Litters 1
Source: Urner Barry
USDA QUARTERLY HOGS & PIGS REPORT
December 23, 2005
Category 2014 2015
'15 as
Pct of
'14
Pre-
Report
Est's1
Actual
minus
Est.

39. Downward trend in farrowings as pct of BH . . .
. . . Consistent – wean age, pen gestation??

40. Litter size – 3 straight records with more to come

41. Since Dec 1, actual is 0.05% over forecast . . .
. . . Note similarity through Q3 – growth in Q4

42. Weights: will remain lower through Q1 . . .
 Net impact of weights in ’16 will be zero
 But the one positive quarter will be a
problem
. . . Unchanged Q2 and Q3, +1% in Q4

43. Slaughter forecasts from Dec H&P
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2013 Year 112.124 -1.0%
2014 Q1 27.131 -2.6%
Q2 25.575 -4.5%
Q3 25.558 -7.6%
Q4 28.612 -4.0%
Year 106.876 -4.7%
2015 Q1 27.650 1.9% 27.398 1.0% 27.405 1.0% 28.723 5.9%
Q2 27.186 6.3% 27.358 7.0% 27.237 6.5% 27.848 8.9%
Q3 27.839 8.9% 27.779 8.7% 28.446 11.3% 28.474 11.4%
Q4 30.500 6.6% 30.400 6.2% 30.098 5.2% 30.529 6.7%
Year 113.176 5.9% 112.935 5.7% 113.186 5.9% 115.574 8.1%
2016 Q1 29.240 1.8% 29.597 3.0% 29.211 1.7%
Q2 28.126 1.0% 27.852 0.0% 27.570 -1.0%
Q3 28.830 1.3% 28.555 0.3% 28.588 0.4%
Q4 30.996 1.5% 30.515 0.0% 31.109 1.9%
Year* 117.193 1.5% 116.519 0.8% 116.478 0.8%
Red figures are analysts' last FORECAST for the given quarter (Q1 done in Dec, Q2 done in Mar, etc.) 1/7/16
Blue figures are estimated using USDA data*Annual total uses actuals to-date plus forecasts for the rest of the year.
ISU LMIC EMI ACTUAL
December 2015 Hogs & Pigs -- Commercial Slaughter Forecasts

44. Price Forecasts – December H & P
ISU LMIC EMI CME
Ia-Mn
Producer-Sold
Neg'd Base
National Wtd
Avg. Base Price
National Net
Neg'd Price,
Wtd. Avg.
CME Lean Hog
Futures/Index
2013 Year 86.70 87.16 89.21 89.23
2014 Q1 93.10 91.34 93.80 94.91
Q2 115.41 111.61 116.83 117.48
Q3 111.00 109.63 114.25 115.70
Q4 90.49 90.08 91.41 91.85
Year 102.50 100.31 102.95 104.99
2015 Q1 64.35 68.67 66.03 68.59
Q2 71.59 73.56 73.22 74.36
Q3 73.43 74.60 74.92 74.64
Q4 58.95 61.91 59.80 62.77
Year 67.08 69.69 68.49 70.09
2016 Q1 58 - 63 62 - 64 61 - 65 64.33
Q2 71 - 76 73 - 77 72 - 76 75.12
Q3 69 - 74 74 - 79 74 - 78 77.25
Q4 58 - 63 62 - 68 59 - 61 65.56
Year 64 - 69 68 - 71 67 - 70 70.56
Blue figures are estimated using USDA data 1/26/16
December 2015 Hogs & Pigs -- Price Forecasts

45. Packer margins were very good this fall . . .
. . Lower by-prod values will keep pressuring hogs

46. This fall’s selloff hurt but costs dropped too . . .
. . . LH rally, lower costs has put ‘16 in the black

47. Risks
 Major export disruption – small prob, HUGE impact
 PEDv impact: Smaller but we still aren’t in the clear
 HPAI – same thing here
 Slower demand growth
- Domestic: Will positive preferences continue?
- Exports: World economy, strong $U.S.
 How much expansion in pigs and chicken?
 Surge of Canadian hogs due to US$ and end of
MCOOL

48. No flood of hogs from Canada but MORE . . .

49. Steve R. Meyer, Ph.D.
Vice-President, Pork Analysis
EMI Analytics
QUESTIONS AND DISCUSSION?
Iowa Pork Congress – January 2016