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From information, knowledge Paragon Economics, Inc. Steve R. Meyer, Ph.D. Paragon Economics, Inc. NPB Pork Management Conference - 2013 Livestock and Meat.

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Presentation on theme: "From information, knowledge Paragon Economics, Inc. Steve R. Meyer, Ph.D. Paragon Economics, Inc. NPB Pork Management Conference - 2013 Livestock and Meat."— Presentation transcript:

1 From information, knowledge Paragon Economics, Inc. Steve R. Meyer, Ph.D. Paragon Economics, Inc. NPB Pork Management Conference Livestock and Meat Outlook

2 From information, knowledge Paragon Economics, Inc. Key issues for profitability...  Input prices and production costs  Demand -Domestic economic conditions -World economy, competition and demand -Exports and a resolution to challenges -Competitor protein supplies – and prices  Output levels for 2013 – and ‘14  Prices and margins 6/20/20132

3 From information, knowledge Paragon Economics, Inc. Backdrop: Massive losses for hogs, cattle 6/20/2013 3

4 From information, knowledge Paragon Economics, Inc. Cow-calf profits – with 2013 expected good... Assumes “normal” weather, corn, hay 6/20/2013 4

5 From information, knowledge Paragon Economics, Inc. Output trends all kinked in ‘08-’ and flattened in ‘12 – what about ‘13 & ‘14? 6/20/2013 5

6 From information, knowledge Paragon Economics, Inc. The critical issue for U.S. agriculture is still:  Severe drought area is down to 25%  High Plaines 45%, South 34%, MW 0.0%, 6/20/2013 6

7 From information, knowledge Paragon Economics, Inc. Scary context: April some problems... But LITTLE HINT of what was to come! 6/20/2013 7

8 From information, knowledge Paragon Economics, Inc. Grain, feed, cost assumptions  “Normal” weather from here on out  Corn yields in the mid- to upper-140 range  SB yields in the mid-40s  Current futures are fairly priced for corn, a bit high for SBM – weather premium in SB  F-F hog costs near $80/cwt carcass  Fed cattle BE’s >$130 thru year end, $120s in 2014 as feeders increase  Chicken BE’s near $90 RTC weight 6/20/2013 8

9 From information, knowledge Paragon Economics, Inc. The macro-economy – key issues  Short term -Housing market is improving – low interest rates, job growth -Wealth effect has been positive – at least until this week -U-rate is falling but will likely stay above 7%  Long term -Deficit & spending – must be reigned in -How will economy react when the Fed actually slows on Quant Easing? 6/20/20139

10 From information, knowledge Paragon Economics, Inc. January 2013 – World economy is better But EU is still a wreck – and now Japan 6/20/201310

11 From information, knowledge Paragon Economics, Inc. Exchange rates  Real moved big in ‘11-’12, stable recently  Peso has improved but is still weaker than in ’11, ditto for the won  Rapidly falling yen – due to gov’t policy 6/20/201311

12 From information, knowledge Paragon Economics, Inc. The U.S. economy muddles along Q1 GDP +2.4% - Still slowed by uncertainty 6/20/201312

13 From information, knowledge Paragon Economics, Inc. Dec Real per capita PDI was false security Jan was -0.4%, April was only +0.3% 6/20/201313

14 From information, knowledge Paragon Economics, Inc. PC cons did not go below 200# last year What about ‘13 or ’14? 6/20/201314

15 From information, knowledge Paragon Economics, Inc. Demand Primer  Demand is – The quantities of a product that consumers are willing and able to buy at alternative prices. -A set of price-quantity pairs -Downward sloping in P-Q space -Consumer is the primary demand – all others are derived based on transformation costs  Factors: Tastes/preferences, prices of substitutes (+) and complements (-), consumer incomes (ie. budget constraint) 6/20/201315

16 From information, knowledge Paragon Economics, Inc. Retail prices are at or near record highs Would not be if demand was, in fact, lower 6/20/201316

17 From information, knowledge Paragon Economics, Inc. Individual species indexes still mixed Chicken, beef and pork: Up for past 12 mos. 6/20/201317

18 From information, knowledge Paragon Economics, Inc. RPCE figures show monthly changes 6/20/201318

19 From information, knowledge Paragon Economics, Inc. Further proof: Record high ’12 expenditures... And another record expected in /20/201319

20 From information, knowledge Paragon Economics, Inc. Exports have been a BIG challenge in ‘ Pork is -14.5%, beef is -3%, chicken up 6/20/201320

21 From information, knowledge Paragon Economics, Inc. Russia & China Why is it happening?  Not really about ractopamine  China: Low hog prices, protection  Russia: -Push-back on human rights language -Protecting its domestic industry – self- sufficiency goals, vested interests in govt. -“Normal” fun and games with Russkies  Exports to Russia accounted for 1.2% of ’12 pork production, China accounted for 3.4% % price impact? 6/20/201321

22 From information, knowledge Paragon Economics, Inc. CATTLE AND BEEF 6/20/201322

23 From information, knowledge Paragon Economics, Inc. Some context: August 2011 – severe in SW 6/20/201323

24 From information, knowledge Paragon Economics, Inc. Further context: Summer On 8/21: 77% drought, 44% severe or worse 6/20/201324

25 From information, knowledge Paragon Economics, Inc. ‘11 drought drove beef cow slaughter 6/20/201325

26 From information, knowledge Paragon Economics, Inc. ‘11 drought also drove HIGHER placements 6/20/201326

27 From information, knowledge Paragon Economics, Inc. Very high portion of pastures were poor In October ‘12 - last crop condition report 6/20/201327

28 From information, knowledge Paragon Economics, Inc. Ranges/pastures have improved sharply Still at the same level as last year 6/20/201328

29 From information, knowledge Paragon Economics, Inc. Regional -- Only the west is bad 6/20/201329

30 From information, knowledge Paragon Economics, Inc. Dec 1 Hay Stocks – Pct change, ‘12 vs. ‘11 6/20/201330

31 From information, knowledge Paragon Economics, Inc. Beef: Long-term trends PLUS droughts Smallest January 1 U.S. beef cow herd since ’46... Smallest calf crop since 1949 is forecast for ‘13 6/20/201331

32 From information, knowledge Paragon Economics, Inc. FC supplies grew by 0.7% vs. Jan ‘ But are still near record low at mil. 6/20/201332

33 From information, knowledge Paragon Economics, Inc. Placements had been lower yr/yr 8 of 9 mos.... Until +6% & +15% in March and April 6/20/201333

34 From information, knowledge Paragon Economics, Inc. May 1 COF is still 3.4% below last year Lower near-term supplies, closer in fall 6/20/201334

35 From information, knowledge Paragon Economics, Inc. May placements expected to be down again 6/20/201335

36 From information, knowledge Paragon Economics, Inc. Record-high weights helped prod levels But we are now back to yr-ago weights 6/20/201336

37 From information, knowledge Paragon Economics, Inc. No turn-around in sight for availability Per-cap: -3% in ‘13 and -5.5%+ in /20/201337

38 From information, knowledge Paragon Economics, Inc. Just as in ‘12, the sector is poised to grow But will Mother Nature allow it to do so? 6/20/201338

39 From information, knowledge Paragon Economics, Inc. Choice cutout FINALLY broke $ Still there but falling from $210 peak 6/20/201339

40 From information, knowledge Paragon Economics, Inc. Driven by middle meats as end meats lag 6/20/201340

41 From information, knowledge Paragon Economics, Inc. Beef summary...  Cattle are still big but will run close to ‘12  Lower cattle numbers thru Q3 and thus lower beef supplies  Producers are keeping heifers but have some already moved to lots? Grass!!!!  Longer term: Tighter per cap supplies thru 2014 (‘15?) and higher prices  Will beef cease to be a habit for anyone below the middle class? 6/20/201341

42 From information, knowledge Paragon Economics, Inc. CHICKEN 6/20/201342

43 From information, knowledge Paragon Economics, Inc. Poultry: Reductions in ‘07 and ’11 but Flock has been up 1-2% yr/yr since Jan. 6/20/201343

44 From information, knowledge Paragon Economics, Inc. Sets have grown, yr/yr but placements... Sets were virtually even with ‘11 levels the entire second half of 2012 – now +1%... Are even with last year – so far Chick placements YTD are unchanged from /20/201344

45 From information, knowledge Paragon Economics, Inc. Slaughter is up slightly but prod is up 2+% Broiler production is now +2.2% YTD vs – and more to come! Broiler slaughter is up 0.9%YTD vs – and more to come! 6/20/201345

46 From information, knowledge Paragon Economics, Inc. Weights were a big driver for ‘12 output A mixed bag so far in ‘13 – but still high 6/20/201346

47 From information, knowledge Paragon Economics, Inc. STRONG chicken prices driven by breasts! 6/20/201347

48 From information, knowledge Paragon Economics, Inc. Demand summary  Demand indexes are slightly higher than in ‘12 so far – with chicken leading  Still concerned about consumer incomes in ‘13 – wages, taxes?  New pork export records are in BIG doubt -Russia and China – over 20% of volume -Weaker yen will hurt Japanese buying power -MCOOL retaliation – may not hit until ‘14  Higher beef and chicken (??) prices will be positive for pork demand 6/20/201348

49 From information, knowledge Paragon Economics, Inc. HOGS AND PORK 6/20/201349

50 From information, knowledge Paragon Economics, Inc exports were 4% higher than ‘11 record 6/20/201350

51 From information, knowledge Paragon Economics, Inc. Exports have been THE issue in Down 16% thru April, Feb-Apr down 14.4% 6/20/201351

52 From information, knowledge Paragon Economics, Inc. April exports – Japan down but steady..... Mexico came back, China on LT trend 6/20/201352

53 From information, knowledge Paragon Economics, Inc. U.S. sow herd is near smallest on record And yet Q4 production was record large! 6/20/201353

54 From information, knowledge Paragon Economics, Inc. Steady and dramatic productivity growth... 6/20/201354

55 From information, knowledge Paragon Economics, Inc. Weights have helped long-term production..... But feed costs have slowed them! 6/20/201355

56 From information, knowledge Paragon Economics, Inc. Imports from Canada are -9% YTD Risk issue for ‘14: MCOOL retaliation 6/20/201356

57 From information, knowledge Paragon Economics, Inc. ‘12 production costs were record-high......’13 will likely be higher -- new crop help? 6/20/201357

58 From information, knowledge Paragon Economics, Inc. 6/20 CME Group futures prices still imply Large losses for 2013 – but profits in ‘14 6/20/201358

59 From information, knowledge Paragon Economics, Inc. Sow slaughter: Higher due to prices But lower than “normal” ALL YEAR 6/20/201359

60 From information, knowledge Paragon Economics, Inc. March H&P Report: The herd is GROWING 6/20/201360

61 From information, knowledge Paragon Economics, Inc. ‘13 slaughter will be slightly larger than ’ But pattern will be different – summer??? 6/20/201361

62 From information, knowledge Paragon Economics, Inc. March H&P Report slaughter forecasts 6/20/201362

63 From information, knowledge Paragon Economics, Inc. What will be the impact of PEDv? As of 6/10:  218 positive samples  199 premises, up 44 from 6/3 – 47 sow farms, 130 growing pigs sites, 20 unknown  Positive in 19 states  102 in Iowa, 19 in Minnesota and 38 in Oklahoma – up 20 from 6/3  Earliest confirmed case is still mid-April  Number of animals impacted is unknown  Death losses, 7-10 days of slow/no growth 6/20/201363

64 From information, knowledge Paragon Economics, Inc. Disappointing Q1 has given way to..... An exceptional rally – that is likely OVER 6/20/201364

65 From information, knowledge Paragon Economics, Inc. Support from MANY part of the pig! Next? 6/20/201365

66 From information, knowledge Paragon Economics, Inc. Hog rally has gone to my “pre-March” highs Unlikely to see much more this summer 6/20/201366

67 From information, knowledge Paragon Economics, Inc. Packers have chased hogs since April... 6/20/ But margins are likely to widen soon

68 From information, knowledge Paragon Economics, Inc. Price forecasts – April reductions Now look too big -- book Q3 and Q4? 6/20/201368

69 From information, knowledge Paragon Economics, Inc. Slaughter trends vs. packing capacity 6/20/201369

70 From information, knowledge Paragon Economics, Inc. But the real capacity trend if FLAT! 6/20/ Potential trouble if we return to growth!

71 From information, knowledge Paragon Economics, Inc. Summary  Beef industry is still being impacted by ‘11 drought – and output will be effected through 2014 and into 2015 – high prices  Chicken slowed in ‘11 but has begun to grow again – and could grow QUICKLY  Pork industry: Huge equity hit but has “maintained” pending good ‘13 crops and a return to “normal” costs  Cornbelt rains have been good – need some warm, dry days now 6/20/201371

72 From information, knowledge Paragon Economics, Inc. Questions or Comments? 6/20/201372


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