Economic Outlook: Heidi Klum or The Witch of the West?

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Economic Outlook: Heidi Klum or The Witch of the West? by Steve R. Meyer, Ph.D. Paragon Economics, Inc., from the Morrison Group's At The Meeting.

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Economic Outlook: Heidi Klum or The Witch of the West?

  1. 1. Pig Ski Conference – February 2009 Economic Outlook: Heidi Klum or The Witch of the West? Steve R. Meyer, Ph.D. Paragon Economics, Inc. Paragon Economics, Inc. From information, knowledge
  2. 2. COMPETITORS Paragon Economics, Inc. From information, knowledge
  3. 3. Current market shares of broiler companies Paragon Economics, Inc. From information, knowledge
  4. 4. ’08 broiler slaughter: DOWN 0.7% . . . . . . On equal number of weeks! Q4: -4.7% YTD ’09: -6% Paragon Economics, Inc. From information, knowledge
  5. 5. Higher weights offset some of the reduction . . . production still grew – but only 1.2% in ‘08 Paragon Economics, Inc. From information, knowledge
  6. 6. But HUGE cutbacks are on the way w/ sets . . . . . . down 2.9% for ’08, 7.6% for Q4-08, 7.1% YTD Paragon Economics, Inc. From information, knowledge
  7. 7. Prices ARE better this year . . . . . . but are not good enough to cover costs Paragon Economics, Inc. From information, knowledge
  8. 8. Signs of longer-term reductions . . . Paragon Economics, Inc. From information, knowledge
  9. 9. Dec 2008 COF was 6.2% lower than in ’07 . . . . . . and COF was yr/yr lower from July on in ‘08 Paragon Economics, Inc. From information, knowledge
  10. 10. Jan 1 COF was down 7.1% from Jan 2007 Paragon Economics, Inc. From information, knowledge
  11. 11. But the July Cattle Inventory said . . . . . . there are plenty of cattle still out there Paragon Economics, Inc. From information, knowledge
  12. 12. January Cattle report due out tomorrow . . . . . . still a lot of feeder cattle vs. placements Paragon Economics, Inc. From information, knowledge
  13. 13. Delayed placements due to feed costs . . . . . . mean larger cattle in and out of lots Paragon Economics, Inc. From information, knowledge
  14. 14. Longer term – fewer beef cows . . . . . . Canadian cows are ~30% of this increase Paragon Economics, Inc. From information, knowledge
  15. 15. FEED PRICES AND COSTS Paragon Economics, Inc. From information, knowledge
  16. 16. Ethanol producers are hurting – Ohhhhhh. “The ethanol industry is on its back despite the billions of dollars they have gotten in taxpayer assistance AND a guaranteed market.” Amy Myers Jaffe Energy Analyst Rice University In the New York Times, February 12 Paragon Economics, Inc. From information, knowledge
  17. 17. Forget cellulosic. Will the RFS be met in ’09? Paragon Economics, Inc. From information, knowledge
  18. 18. And now E-10 will cost MORE than gasoline? Paragon Economics, Inc. From information, knowledge
  19. 19. But these guys are STILL DANGEROUS! Paragon Economics, Inc. From information, knowledge
  20. 20. Corn and oil correlation is breaking down . . . . . Speculative? Necessary for acres? Paragon Economics, Inc. From information, knowledge
  21. 21. Corn prices have likely made a bottom . . . . . . Future a function of soybeans, weather Paragon Economics, Inc. From information, knowledge
  22. 22. Corn must keep up with beans . . . . . . And is not doing very well at the moment Paragon Economics, Inc. From information, knowledge
  23. 23. Weekly chart: Now in ’06-’07 trading range. . . . . . But $3 to $4.50 is VERY wide, historically Paragon Economics, Inc. From information, knowledge
  24. 24. SBM futures: Confirmed double bottom . . . . . . Now a function of Brazil, Arg, U.S. weather Paragon Economics, Inc. From information, knowledge
  25. 25. Feed costs have risen since early December Paragon Economics, Inc. From information, knowledge
  26. 26. DEMAND Paragon Economics, Inc. From information, knowledge
  27. 27. Demand indexes are down for all meats . . . . . . And ALL have had a tough 3 years Paragon Economics, Inc. From information, knowledge
  28. 28. An alternate demand measure: RPCE Paragon Economics, Inc. From information, knowledge
  29. 29. Monthly RPCE clearly shows ’08 problem . . . . . . retail price did not make up for exports Paragon Economics, Inc. From information, knowledge
  30. 30. Huge growth in pork exports -- +49.7% in ‘08 . . . Nov & Dec: up only 0.5% & 3.2% from ‘07 Paragon Economics, Inc. From information, knowledge
  31. 31. Exports to China are down 80% from June. . . . . . other markets are holding pretty well Paragon Economics, Inc. From information, knowledge
  32. 32. Impact 1: Exports pulled up low value cuts . . . but we are back to “normal” now Paragon Economics, Inc. From information, knowledge
  33. 33. Impact 2: Record high by-product values . . . but those are returning to “normal”, too Paragon Economics, Inc. From information, knowledge
  34. 34. How will a stronger $US impact exports? . . . $US is still WEAK in historic terms Paragon Economics, Inc. From information, knowledge
  35. 35. HOG SUPPLIES Paragon Economics, Inc. From information, knowledge
  36. 36. Profits plunged again in Nov & Dec . . . . . . To -$45 & -$40, -$27.86/hd in January Paragon Economics, Inc. From information, knowledge
  37. 37. 2008 will be the second worst year EVER . . . . . . At $-21.78, second only to 1998 Paragon Economics, Inc. From information, knowledge
  38. 38. Producer wealth is now at ’97 and ’06 levels Paragon Economics, Inc. From information, knowledge
  39. 39. December H&P Report: A hodge-podge Paragon Economics, Inc. From information, knowledge
  40. 40. Lower hog supplies are on the way . . . . . . with significant reductions in Q2 & Q3 Paragon Economics, Inc. From information, knowledge
  41. 41. Fewer Canadian market hogs -- MCOOL & $C . . . down 76% year-to-date Paragon Economics, Inc. From information, knowledge
  42. 42. FP imports: 6.7 mil in ’08, 5 to 5.2 mil in ’09? Paragon Economics, Inc. From information, knowledge
  43. 43. MCOOL: What the (*&^)*(#@ is going on? Government rules were pretty well   understood – until the final rule and Secretary Vilsack’s muddying the waters! -  Big concern: Consumers Union and Food & Water Watch were cited in stories on “voluntary” rules The final rule provides LOADS of flexibility   – probably too much for MHs   The final rule changes came from the office of U.S. Trade Rep – avoid trade war Paragon Economics, Inc. From information, knowledge
  44. 44. The ultimate judge will be the consumer Wild card: Consumer reaction to multi-   country label -  Will “Canada” on label be a problem? -  “Mexico”, “Uruguay”, etc. may be – beef My expectation: Consumer will NOT dis-   criminate against “U.S & Canada” label -  Canadian feeders/weaners will be wanted -  But will they be available? » Shrinking Canadian herd » Renewal of Canadian feeding -- Hytek Paragon Economics, Inc. From information, knowledge
  45. 45. Breeding herds are falling rapidly . . . . . . But the incentives have changed Paragon Economics, Inc. From information, knowledge
  46. 46. Oct Canada-U.S. BH was smallest since 1986 Paragon Economics, Inc. From information, knowledge
  47. 47. Sow slaughter slowed markedly in late ‘08 Paragon Economics, Inc. From information, knowledge
  48. 48. Quarterly slaughter forecasts . . . Paragon Economics, Inc. From information, knowledge
  49. 49. Price forecasts based on Dec H&P . . . . . . w/ futures lower re. cash forecasts Paragon Economics, Inc. From information, knowledge
  50. 50. 2009 prices are not “BAD” hog prices!!! . . . but they’ve fallen $5 since Jan 1 Paragon Economics, Inc. From information, knowledge
  51. 51. 2009: Futures prices are back to breakeven Paragon Economics, Inc. From information, knowledge
  52. 52. July & Aug: About 50% of seasonal rally . . . . . . comes after January – mid to upper $80s Paragon Economics, Inc. From information, knowledge
  53. 53. Supply and price expectations HIGHER meat prices LED by chicken this   winter – Ethanol’s impact on food is finally here! Paragon Economics, Inc. From information, knowledge
  54. 54. Retail meat prices may flatten in short run . . . . . but they still must rise to cover all costs! Paragon Economics, Inc. From information, knowledge
  55. 55. Supply and price expectations HIGHER meat prices LED by chicken this   winter   Hog prices – GOOD but not good enough. Profits Q2 and Q3, losses Q1 and Q4   More breeding herd reduction – Canada’s is slowing but will U.S. cut back more?   Weights constant to growing slightly   Productivity is increasing sharply -- Will the cutbacks be enough to keep the industry profitable? Paragon Economics, Inc. From information, knowledge
  56. 56. Risks Demand, both domestic and international, given   the financial crisis Exports – Declining growth rate is virtually   certain but will they actually fall? -  Yes: Exchange rates – esp. Mexico -  No: Output reductions by competitors (mainly EU) -  Wild card: China? Productivity growth may out-strip breeding   herd/flock reductions A new round of cost increases in ’09 -- bidding   for acres? weather? MCOOL – impacts?   Paragon Economics, Inc. From information, knowledge
  57. 57. CME’s Daily Livestock Report www.dailylivestockreport.com National Hog Farmer’s North American Preview www.nationalhogfarmer.com Paragon Economics, Inc. From information, knowledge
  58. 58. Price forecasts based on Dec H&P . . . . . . w/ futures lower re. cash forecasts Paragon Economics, Inc. From information, knowledge

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