Associate Professor/Crop Markets Specialist Ag Outlook GNB Bank Meeting Iowa Falls, IA Dec. 6, 2016 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2012 2013 2014 2015 2016 Area Planted (mil. acres) 97.3 95.4 90.6 88.0 94.5 Yield (bu./acre) 123.1 158.1 171.0 168.4 175.3 Production (mil. bu.) 10,755 13,829 14,216 13,601 15,226 Beg. Stocks 989 821 1,232 1,731 1,738 Imports 160 36 32 67 50 Total Supply 11,904 14,686 15,479 15,400 17,013 Feed & Residual 4,315 5,040 5,280 5,130 5,650 Ethanol 4,641 5,124 5,200 5,206 5,300 Food, Seed, & Other 1,397 1,369 1,401 1,429 1,435 Exports 730 1,920 1,867 1,898 2,225 Total Use 11,083 13,454 13,748 13,662 14,610 Ending Stocks 2,403 Season-Average Price ($/bu.) 6.89 4.46 3.70 3.61 3.30 Source: USDA-WAOB 2 2

U.S. Soybean Supply and Use 2012 2013 2014 2015 2016 Area Planted (mil. acres) 77.2 76.8 83.3 82.7 83.7 Yield (bu./acre) 40.0 44.0 47.5 48.0 52.5 Production (mil. bu.) 3,042 3,358 3,927 3,926 4,361 Beg. Stocks 169 141 92 191 197 Imports 41 72 33 24 30 Total Supply 3,252 3,570 4,052 4,140 4,588 Crush 1,689 1,734 1,873 1,886 1,930 Seed & Residual 105 107 146 121 127 Exports 1,317 1,638 1,842 1,936 2,050 Total Use 3,111 3,478 3,862 3,943 4,108 Ending Stocks 480 Season-Average Price ($/bu.) 14.40 13.00 10.10 8.95 9.20 Source: USDA-WAOB 3 3

Corn Yield Estimates Top: 2016 Yield Bottom: Change from last month Units: Bushels/acre Source: USDA-NASS

Soy Yield Estimates Top: 2016 Yield Bottom: Change from last month Units: Bushels/acre Source: USDA-NASS

World Corn Production Source: USDA-WAOB 6 6

World Soybean Production Source: USDA-WAOB 7 7

Drought Monitor Source: National Drought Mitigation Center 8 8

Hog Crush Margin The Crush Margin is the return after the pig, corn and soybean meal costs. Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futures Corn: 10 bushels per pig Soybean meal: 150 pounds per pig Source: ISU Extension

Cattle Crush Margin The Crush Margin is the return after the feeder steer and corn costs. Live weight: 1250 pounds Feeder weight: 750 pounds Corn: 50 bushels per head Source: ISU Extension

U.S. Meat Production & Prices Source: USDA-WAOB 11 11

Corn Export Sales Source: USDA-FAS

Change in Corn Export Sales Source: USDA-FAS

Soybean Export Sales Source: USDA-FAS

Change in Soybean Export Sales Source: USDA-FAS

Strength of the U.S. Dollar Source: Federal Reserve

Corn Grind for Ethanol

Crude Oil Prices Sources: EIA and CME

Current Corn Futures 3.67 3.35 Source: CME Group, 12/5/2016

Current Soybean Futures 9.84 9.73 Source: CME Group, 12/5/2016

2016/17 Crop Margins @ Trend Yields

2016/17 Crop Margins @ Actual Yields

2017/18 Crop Margins

Iowa Corn Prices vs. Costs

Iowa Soybean Prices vs. Costs

Beef: + 2015.Q4 Pork: + 2015.Q1 Total Poultry: +2012.Q4 Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center

2017 2016 2015 Data Source: USDA/ERS

2016 Beef Cattle Situation Transition to larger beef supplies in 2016 has been challenging Cow-calf: Converging toward long-term levels Herd expansion slowed, stalled, or stopped? Stocker: Varies widely across situations Opportunities vs. risk of owning cattle and managing risk Feedlot: Worst behind us (I think), still red ink Structural concerns—excess capacity, price discovery, etc.

Projections for 11/6/15 9/2/16 9/27/16 11/1/16 2016 $300 $78 $15 -$30 2017 $86 $22 -$29 Data Source: USDA & LMIC, Compiled by LMIC Livestock Marketing Information Center

Data Source: USDA/AMS

Top 10, 2015 to 2016 Head % TX +160,000 +3.9% OK +73,000 MO +61,000 +3.3% NE +96,000 +5.5% SD +79,000 +4.9% KS +4.3% MT -10,000 -0.7% KY +24,000 +2.4% IA +40,000 +4.4% FL +9,000 +1.0% Total 593,000 +3.5%

Data Source: USDA/AMS

2016 Slaughter +13.0% (vs. 2015) -23.2% (vs. 2010-14) Beef Cow Culling Rates 2005 = 7.7% (6.6%) 2006 - 2007 = 9.4% (8.0%) 2008 - 2012 = 11.2% (9.6%) 2013 = 10.5% (9.1%) 2014 = 8.8% (7.7%) 2015 = 7.6% (6.5%) 2016 = 7.1% (7.1%) 2016 Slaughter +13.0% (vs. 2015) -23.2% (vs. 2010-14) Data Source: USDA-AMS & USDA-NASS Livestock Marketing Information Center

36.8% is average between 1996‐2016 HEIFER REPLACEMENTS 2016: +3.5% 2015: +9.6% 1993: +8.0% 1982: +7.7% Data Source: USDA/NASS

Data Source: USDA/AMS

Cattle on Feed―11/18 report (1,000+ head capacity feedlots; & < 1,000 in Iowa) Oct 1 On Feed: -1.3% yr/yr Vs. -1.1% pre-report est. -2.3%, -0.5%) IA: -6.3% vs last year [1,000+ Head] IA: 0.0% vs last year [<1,000 Head] Sep Placements: -5.0% Vs. -4.9% pre-report est. (-10.1%, -3.4%) IA: -17.3% vs last year [1,000+ Head] IA: +11.0% vs last year [<1,000 Head] Sep Marketings: +4.6% Vs. +4.4% pre-report est. (+3.1%, +6.5%) IA: -15.0% vs last year [1,000+ Head] IA: -36.5% vs last year [<1,000 Head] -3.5% -7.6% -24.2% Data Source: USDA/NASS

Steer Live Weights Heifer Live Weights This week: 1,447 Last week: 1,464 Last year: 1,453 Heifer Live Weights This week: 1,322 Last week: 1,320 Last year: 1,294 Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center

Data Source: USDA-AMS Livestock Marketing Information Center

2013 = -$59.43 [-$155 to +$77] 2014 = +$197.24 [+$41 to +$ 269] 2015 = -$225.12 [-$530 to +$43] 2016f = -$113.29 [-$359 to +$113] 2017f = -$26.44 [-$108 to +$114]

U.S. Beef Exports, Jan-Sep 2016 (Volume excluding by-products & variety meats) Sep-16/Aug-16 Sep-16/Sep-15 Year-to-Date Country Percent 1,000 lbs Mexico -10% 5% 29,444 11% Japan 36% 61,711 14% Canada 4% 7% -19,954 -8% South Korea -18% 83% 74,660 32% Hong Kong 38% 19% -7,867 -4% China (Taiwan) -16% 87% 10,999 13% Vietnam 27% 100% 2,971 37% Netherlands -14% -6% -4,162 Philippines -3% 43% -6,906 -28% Bahamas -24% -2% -64 -1% United Arab Emirates -21% 33% 864 8% Chile -27% 17% 1,646 9% Dominican Republic -15% -3,377 Italy -4,329 -30% Other Countries 6,927 Total 30% 142,563 WASDE U.S.: 2015: 2,265 mil lbs 2016: 2,459 (+9%) 2017: 2,630 (+7%) Source: USDA/ERS

U.S. Beef Imports, Jan-Sep 2016 (Volume excluding by-products & variety meats) Sep-16/Aug-16 Sep-16/Sep-15 Year-to-Date Country Percent 1,000 lbs Australia -36% -67% -403,211 -38% Canada -6% 15% 67,580 14% New Zealand -37% -33% -45,195 -8% Brazil 25% 35% -20,597 -16% Uruguay -7% 30% -17,408 Mexico -3% 40% 40,296 13% Nicaragua -21% 79% 110 0% Costa Rica -19% -680 Other Countries 44% -29% -2,226 -23% Total -17% -24% -381,332 -14% WASDE U.S.: 2015: 3,371 mil lbs 2016: 3,011 (-11%) 2017: 2,680 (-11%) Source: USDA/ERS

Relative Changes in Beef & Cattle Prices ALL COMPRE HENSIVE FRESH BOXED IA/MN IA RETAIL BEEF DIRECT 550 LB CUTOUT STEER CALF $/lb $/cwt 2008 $3.97 $151.05 $91.39 $122.56 2009 $3.89 $139.53 $82.44 $112.24 2010 $4.02 $154.24 $94.25 $130.02 2011 $4.44 $178.71 $115.02 $150.38 2012 $4.69 $187.95 $122.70 $169.29 2013 $4.94 $193.18 $125.80 $173.53 2014 $5.60 $236.02 $153.84 $253.26 2015 $6.04 $235.25 $147.24 $253.33 2016 $5.77 $204.99 $120.59 $168.56 YR/YR Change (%) -1.9% -7.6% -9.8% -8.4% 3.3% 10.5% 14.3% 15.8% 10.4% 15.9% 22.0% 15.7% 5.7% 5.2% 6.7% 12.6% 2.8% 2.5% 13.4% 22.2% 22.3% 45.9% 7.8% -0.3% -4.3% 0.0% -4.4% -12.9% -18.1% -33.5% Source: USDA/ERS, USDA/AMS

2016 Pork Situation Processing capacity squeeze. 1998 Déjà vu??? Demand is always an important driver. But we first need to understand supply dynamics. Lower hog and pig prices have likely raised the red flag on further expansion, at least for now. Longer-term additional expansion is quite possible Low feed grain prices, packer competition Revisions to H&P report complicate analysis

Data source: CME Group, compiled by BarChart.com.

Data Source: USDA-ERS & USDA-FAS Livestock Marketing Information Center

2013 = +$6.21 [-$25.60 to +$24.57] 2014 = +$61.85 [+$13.15 to +$107.25] 2015 = +$7.93 [-$18.40 to +$26.25] 2016f = -$1.46 [-$30.11 to +$32.92] 2017f = -$4.40 [-$23.31 to +$17.97]

USDA Quarterly Hogs and Pigs Report – United States September 30, 2016   2016 as % Pre-Report Actual - 2015 2016 of 2015 Range Estimate Inventories on Sep 1 * All hogs and pigs 69,185 70,851 102.4 100.6 - 102.3 101.1 1.3 Kept for breeding 5,986 6,016 100.5 99.0 - 101.1 100.6 -0.1 Market 63,200 64,835 102.6 100.6 - 102.4 1.5 Under 50 pounds 20,741 21,090 101.7 99.0 - 102.0 99.9 1.8 50-119 pounds 18,496 18,851 101.9 99.0 - 102.4 100.8 1.1 120-179 pounds 12,855 13,325 103.7 101.8 - 103.1 102.3 1.4 180 pounds and over 11,108 11,568 104.1 100.5 - 104.0 103.1 1.0 Farrowing ** Jun – Aug sows farrowed 3,017 3,024 100.2 97.7 - 99.8 98.5 1.7 Sep – Nov intentions 2,929 2,928 100.0 98.0 - 101.1 99.6 0.4 Dec – Feb intentions 2,927 2,925 98.0 - 101.3 -0.3 Jun – Aug Pig Crop * 31,343 31,983 102.0 99.0 - 101.3 99.7 2.3 Jun – Aug Pigs per Litter 10.39 10.58 101.8 100.8 - 102.0 101.3 0.5 * 1,000 head ** 1,000 litters Data Source: USDA/NASS. Urner Barry pre-report estimates

Source: USDA/AMS. * Steve Meyer, EMI.

Source: USDA/AMS

U.S. Packing Capacity Under Construction New (proposed) pork Fall 2016 Fall 2017 Fall 2018 Fall 2018 – TSF Doubled packing plants Daily Annual Pleasant Hope, MO 2,500 625,000 Windom, MN 4,000 1,000,000 Sioux City, IA 12,000 3,000,000 20,000 5,000,000 Coldwater, MI 10,000 2,500,000 Wright County, IA Total 6,500 1,625,000 28,500 7,125,000 38,500 9,625,000 46,500 11,625,000 Head per week 31,250 137,019 185,096 223,558 % of '15 avg = 2.195 mil 1.4% 6.2% 8.4% 10.2 % % of '15 max = 2.507 mil 1.2% 5.5% 7.4% 8.9 % July 19, 2016 Source: Steve Meyer. Published in National Hog Farmer Magazine.

2016 Slaughter +0.6% (vs. 2015) -1.7% (vs. 2010-14) Sow Slaughter as % of Sows Farrowed 1998 = 28.5% 1999 = 28.7% 2013 = 26.0% 2014 = 24.1% 2015 = 24.4% 2016 = 25.5% 2016 Slaughter +0.6% (vs. 2015) -1.7% (vs. 2010-14) Data Source: USDA-AMS & USDA-NASS Livestock Marketing Information Center

Source: USDA/AMS

2013 = +$4.77 [-$14.80 to +$22.07] 2014 = +$39.48 [+$1.62 to +$84.64] 2015 = -$14.32 [-$30.32 to +$4.70] 2016f = -$13.29 [-$43.07 to +$17.05] 2017f = -$10.38 [-$28.48 to +$10.90]

Data Source: USDA/AMS

Data Source: USDA-AMS Livestock Marketing Information Center

U.S. Pork Exports, Jan-Sep 2016 (Volume excluding by-products & variety meats) Sep-16/Aug-16 Sep-16/Sep-15 Year-to-Date Country Percent 1,000 lbs Japan -12% -5% -81,119 -8% Mexico 5% 14% -28,234 -2% Canada 3,610 1% South Korea -15% -4% -98,459 -26% China (Mainland) 3% 23% 214,882 112% Hong Kong 11% 4% 44,622 63% Australia -6% -13% 6,118 Philippines 37% -20% 2,346 China (Taiwan) -36% -69% -15,724 -53% Colombia 36% 38% -16,218 -19% Honduras 7,497 16% Dominican Republic -14% 15% 5,799 12% Guatemala 10% 675 2% Chile -16% -17% -3,929 Other Countries 2,103 Total 0% 43,970 WASDE U.S.: 2015: 5,009 mil lbs 2016: 5,179 (+3%) 2017: 5,440 (+5%) Source: USDA/ERS

Relative Changes in Pork & Hog Prices IA/MN CASH/ PORK TOTAL WTD FORMULA RETAIL AVG BASE 10-12 LB PRICE CUTOUT LEAN HOG PIG $/lb $/cwt $/head 2008 $2.94 $69.23 $65.12 $33.99 2009 $2.92 $58.04 $57.04 $32.15 2010 $3.11 $81.01 $72.51 $41.76 2011 $3.43 $93.82 $86.56 $38.09 2012 $3.47 $84.60 $83.54 $38.45 2013 $3.64 $92.71 $86.83 $42.42 2014 $4.02 $110.19 $100.82 $59.32 2015 $3.85 $79.27 $69.31 $38.10 2016 $3.78 $78.72 $64.91 $35.76 YR/YR Change (%) -0.6% -16.2% -12.4% -5.4% 6.6% 39.6% 27.1% 29.9% 10.3% 15.8% 19.4% -8.8% 1.0% -9.8% -3.5% 0.9% 5.1% 9.6% 3.9% 18.9% 16.1% 39.8% -4.1% -28.1% -31.3% -35.8% -2.0% -0.7% -6.4% -6.1% Source: USDA/ERS, USDA/AMS

Thank you for your time. Any questions. My web site: http://www2. econ Thank you for your time! Any questions? My web site: http://www2.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www2.econ.iastate.edu/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/