Agricultural Economic Outlook Iowa Division of Banking Annual Meeting Des Moines, Iowa June 9, 2015 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Meat Production & Prices Source: USDA-WAOB 2 2

Overarching Pork Industry Economic Outlook Supplies Increasing; Breeding herd expansion ongoing Increase in com slght depends on inv, wts, PEDv & PRRS Demand Strength “lost” in supply story + Yr-over-Yr for 10 straight quarters +5% in Q1.2014, +8% Q2, +7% Q3, +11% Q4, & 18% Q1:2015 Combined: “excitement & uncertainty”

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

Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center

2013 = +$6.21 [-$25.60 to +$24.57] 2014 = +$61.85 [+$13.15 to +$107.25] ~2015 = +$17.31 [-$3.23 to +$39.26] ~Jan-Aug 2016 = +$18.43 [+$7.76 to +$29.96]

USDA Quarterly Hogs and Pigs Report – United States March 27, 2015   2015 as % Pre-Report Actual - 2014 2015 of 2014 Range Estimate Inventories on Mar 1 * All hogs and pigs 61,494 65,934 107.2 105.0 - 108.5 106.8 0.4 Kept for breeding 5,851 5,982 102.2 102.4 - 104.6 103.5 -1.3 Market 55,643 59,953 107.7 105.0 - 109.0 0.5 Under 50 pounds 17,336 18,959 109.4 104.2 - 110.3 108.6 0.8 50-119 pounds 15,487 16,509 106.6 104.0 - 109.1 -0.2 120-179 pounds 12,538 13,290 106.0 103.0 - 108.4 106.1 -0.1 180 pounds and over 10,281 11,195 108.9 104.6 - 108.2 107.0 1.9 Farrowing ** Dec – Feb sows farrowed 2,763 2,829 102.4 103.0 - 104.0 103.7 Mar – May intentions 2,810 2,870 102.1 102.1 - 103.8 103.1 -1.0 Jun – Aug intentions 2,991 2,927 97.9 101.7 - 103.8 102.7 -4.8 Dec – Feb Pig Crop * 26,326 28,758 109.2 104.7 - 111.2 0.0 Dec – Feb Pigs per Litter 9.53 10.17 106.7 101.1 - 107.0 105.3 1.4 * 1,000 head ** 1,000 litters Data Source: USDA/NASS

Data Source: USDA/NASS

Data Source: USDA/NASS

Data Source: USDA/NASS

LMIC Pork Production and Price Quarterly Forecasts (6/1/15) Sources: USDA/NASS; USDA/AMS Livestock Market News; Projections and Forecasts by LMIC Year Comm’l % Chg. Avg Carcass Comm’l Pork Quarter Slaughter Year Ago Weight Production 2014 I 27,131 -2.6 213 2.7 5,784 0.2 II 25,575 -4.4 215 4.4 5,504 -0.2 III 25,558 -7.6 212 4.3 5,424 -3.5 IV 28,612 -4.0 1.7 6,131 -2.3 106,876 -4.6 214 3.3 22,843 -1.5 2015 28,723 5.9 0.8 6,161 6.5 27,435 7.3 -1.3 5,832 6.0 27,739 8.5 210 -1.1 5,824 7.4 30,542 6.7 6,541 114,439 7.1 -0.5 24,358 6.6 2016 29,536 2.8 -0.4 6,327 27,211 -0.8 5,797 -0.6 27,764 0.1 211 0.3 5,845 0.4 30,237 -1.0 6,491 114,748 24,460

2015-YTD 0.13% (vs. 2014) Data Source: USDA/AMS

LMIC Pork Production and Price Quarterly Forecasts (6/1/15) Sources: USDA/NASS; USDA/AMS Livestock Market News; Projections and Forecasts by LMIC Year lbs Per Capita % Chg. Nat’l Wtd Quarter Consumption Year Ago Avg Base Price 2014 I 11.3 -1.0 91.44 12.8 II 11.0 -2.6 111.84 25.2 III 11.1 -2.3 110.03 15.5 IV 13.0 2.2 90.13 8.6 46.4 -0.8 100.86 16.1 2015 12.4 9.1 68.55 -25.0 12.0 9.3 73-75 -33.8 11.9 6.6 74-77 -31.4 13.2 1.8 63-67 -27.9 49.5 6.5 70-72 -29.7 2016 12.6 1.7 65-70 -1.5 11.6 -3.2 77-83 8.1 -2.4 78-85 7.9 12.9 -2.1 67-75 9.2 48.7 73-77 5.6

% of U.S. Inventory 2014 2015 IL 8.5% 8.2% IA 17.3% 17.2% MN 9.4% 9.5% MO 6.1% 6.7% NE 6.8% 7.0% NC 14.9% OK 7.3% 7.4% Data Source: USDA/NASS

% of U.S. Inventory 6.7% 6.9% 5.5% 5.6% 33.2% 32.3% 12.5% 12.1% 3.6% 2014 2015 IL 6.7% 6.9% IN 5.5% 5.6% IA 33.2% 32.3% MN 12.5% 12.1% MO 3.6% 4.0% NE 4.7% 4.4% NC Data Source: USDA/NASS

How Much Expansion? USDA & FAPRI Projections http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce151.aspx http://www.fapri.missouri.edu/wp-content/uploads/2015/03/FAPRI-MU-Report-01-15.pdf Yr-over-Yr FAPRI 2015: +2.0% 2016: +6.9% 2017: +4.2% 2018: +0.6% 2014-24: +14.0% Yr-over-Yr USDA 2015: +1.0% 2016: +2.3% 2017: +0.8% 2018: +0.8% 2014-24: +8.1%

Overarching Beef Industry Economic Outlook Tight beef & cattle supplies + Attractive beef-to-feed price ratios + Strong retail meat demand + Initiated (slow???) herd expansion = Record: Prices throughout industry Cash at-stake (so ROI may not be record) Opportunity/Threat ... in the eye of the beholder...

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

Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center

Quarterly Cattle & Beef Forecasts (LMIC: 6/1/2015)   Change Average Commercial from Dressed Beef Year Slaughter Year Ago Weight Production Quarter (1,000 hd) (%) (lbs) (mil lbs) 2013 I 7,781 -3.1 794 1.4 6,175 -1.7 II 8,325 0.2 782 0.4 6,513 0.6 III 8,321 -0.1 0.5 6,609 IV 8,035 -3.0 799 0.7 6,423 -2.3 32,462 -1.5 792 25,720 -0.7 2014 7,374 -5.2 796 0.3 5,868 -5.0 7,837 -5.9 789 0.9 6,184 -5.1 7,632 -8.3 810 1.9 6,179 -6.5 7,326 -8.8 822 2.8 6,021 -6.3 30,170 -7.1 804 1.5 24,252 -5.7 2015 6,967 -5.5 813 2.2 5,664 -3.5 7,430 3.1 6,044 7,553 -1.0 823 1.7 6,216 7,353 824 6,061 29,303 -2.9 819 1.8 23,985 -1.1 2016 7,073 821 1.0 5,810 2.6 7,532 815 6,142 1.6 7,617 0.8 829 6,313 7,379 6,114 29,601 24,379

Quarterly Cattle & Beef Forecasts (LMIC: 6/1/2015)   Live Sltr. Change Steer Price from Feeder Steer Price Year 5-Mkt Avg Year Ago Southern Plains Quarter ($/cwt) (%) 7-800# 5-600# 2014 I 146.34 16.6 171.77 209.30 II 147.82 18.3 193.16 227.67 III 158.49 29.6 225.93 263.14 IV 165.59 26.6 239.81 285.63 154.56 22.8 207.67 246.44 2015 162.43 11.0 215.87 276.14 160-161 8.6 221-222 277-280 154-157 -1.9 217-220 270-276 156-160 -4.6 212-217 260-267 158-160 2.9 216-219 271-275 2016 156-161 -2.4 210-216 262-271 156-162 -0.9 210-218 265-275 152-159 0.0 205-214 258-269 153-161 -0.6 201-211 249-261 155-160 207-214 259-268

Data Source: USDA-AMS, Compiled and Analysis by LMIC Livestock Marketing Information Center

2014 Slaughter -17.9% (vs. 2013) -27.3% (vs. 2008-12) 2015-YTD Slaughter -15.7% (vs. 2014) -14.9% (vs. 2009-13) Beef Cow Culling Rates 2005 = 7.9% 2006 - 2007 = 9.4% 2008 - 2012 = 11.3% 2013 = 10.5% 2014 = 8.8% Data Source: USDA-AMS & USDA-NASS Livestock Marketing Information Center

Data Source: USDA/AMS

(still lowest level since 1962) CHANGE IN BEEF COWS NUMBERS JANUARY 1, 2014 TO JANUARY 2015 (1000 Head) ― U.S. Total: + 607.7 National Cow Herd: 2.1% vs 2014 (still lowest level since 1962) Livestock Marketing Information Center Data Source: USDA-NASS

Data Source: USDA/NASS

How Much Expansion? USDA & FAPRI Projections http://www.ers.usda.gov/publications/oce-usda-agricultural-projections/oce151.aspx http://www.fapri.missouri.edu/wp-content/uploads/2015/03/FAPRI-MU-Report-01-15.pdf Yr-over-Yr FAPRI 2015: +1.8% 2016: +3.1% 2017: +1.6% 2018: +0.7% 2015-24: +2.6% Yr-over-Yr USDA 2015: -0.4% 2016: +0.2% 2017: +2.6% 2018: +4.2% 2015-24: +16.5%

How Much Expansion? USDA & FAPRI Projections http://www.ers.usda.gov/publications/oce-usda-agricultural-projections.aspx http://www.fapri.missouri.edu/wp-content/uploads/2015/03/FAPRI-MU-Report-01-15.pdf

How Much Expansion? USDA & FAPRI Projections http://www.ers.usda.gov/publications/oce-usda-agricultural-projections.aspx http://www.fapri.missouri.edu/wp-content/uploads/2015/03/FAPRI-MU-Report-01-15.pdf

How Much Expansion? FAPRI Projections http://www.fapri.missouri.edu/wp-content/uploads/2015/03/FAPRI-MU-Report-01-15.pdf

Data Source: USDA/NASS

2013 Profits = -$100.77 2014 Profits = +$197.24 ~2015 Profits = -$91.18 ~Jan-Oct 2016 Profits = -$113.18 Oct-03 Profit = $378 Total Cost: = $920 ROI = 41% Oct-14 Profit = $269 Total Cost: = $1,857 ROI = 15%

U.S. Corn Supply and Use 2011 2012 2013 2014 2015 Area Planted (mil. acres) 91.9 97.3 95.4 90.6 89.2 Yield (bu./acre) 147.2 123.1 158.1 171.0 166.8 Production (mil. bu.) 12,360 10,755 13,829 14,216 13,630 Beg. Stocks 1,128 989 821 1,232 1,851 Imports 29 160 36 25 Total Supply 13,517 11,904 14,686 15,472 15,506 Feed & Residual 4,557 4,315 5,036 5,250 5,300 Ethanol 5,000 4,641 5,134 5,200 Food, Seed, & Other 1,428 1,397 1,367 1,347 1,360 Exports 1,543 730 1,917 1,825 1,900 Total Use 12,528 11,083 13,454 13,622 13,760 Ending Stocks 1,746 Season-Average Price ($/bu.) 6.22 6.89 4.46 3.65 3.50 Source: USDA-WAOB 33 33

Corn Planting Progress Source: USDA-NASS

Corn Emergence Source: USDA-NASS

World Corn Production Source: USDA-WAOB 36 36

Corn Export Shifts Source: USDA-FAS

Corn Export Sales Source: USDA-FAS

Crude Oil Prices Sources: EIA and CME

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

Corn Grind for Ethanol

Current Corn Futures 3.64 3.52 Source: CME Group, 6/1/2015

U.S. Soybean Supply and Use 2011 2012 2013 2014 2015 Area Planted (mil. acres) 75.0 77.2 76.8 83.7 84.6 Yield (bu./acre) 41.9 40.0 44.0 47.8 46.0 Production (mil. bu.) 3,094 3,042 3,358 3,969 3,850 Beg. Stocks 215 169 141 92 350 Imports 16 41 72 30 Total Supply 3,325 3,252 3,570 4,091 4,230 Crush 1,703 1,689 1,734 1,805 1,825 Seed & Residual 88 105 97 136 129 Exports 1,365 1,317 1,647 1,800 1,775 Total Use 3,155 3,111 3,478 3,741 3,729 Ending Stocks 500 Season-Average Price ($/bu.) 12.50 14.40 13.00 10.05 9.00 Source: USDA-WAOB 43 43

Soybean Planting Progress Source: USDA-NASS

Soybean Emergence Source: USDA-NASS

World Soybean Production Source: USDA-WAOB 46 46

Soybean Export Shifts Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Current Soybean Futures 9.96 8.69 Source: CME Group, 6/1/2015

2014/15 Crop Margins

2015/16 Crop Margins

Thoughts for 2015 and Beyond Supply/demand concerns Demand has been weakening Outside markets have not helped Watching South American crop and U.S. planting progress Projected negative margins for 2014 and 2015 crops 2014/15 USDA 2015/16 Futures (6/1/15) Corn $3.65 $3.50 $3.64 $3.52 Soybeans $10.05 $9.00 $9.96 $8.69

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