Feed and Livestock Prices Managing Margins: Risk Management for Pork Producers Sheldon, Nashua, and Iowa City, Iowa Dec. 6-8, 2011 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911 1 1

Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC 2

Source: USDA

Hog Prices Source: CME Group, 12/5/11

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: Shane Ellis, ISU Extension

Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC 6

Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC 7

Source: USDA

Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC 9

Thoughts for 2012 and Beyond Continued economic recovery is a major key for livestock prices Meat demand is recovering Meat supplies tightened up with smaller herds/flocks Feed costs have kept margins tight The combination implies livestock expansion will take awhile Poultry is currently backing off, Hogs are expanding slightly, and Cattle will not start expanding for a few years

U.S. Corn Supply and Use 2008 2009 2010 2011 Area Planted (mil. acres) 86.0 86.4 88.2 91.9 Yield (bu./acre) 153.9 164.7 152.8 146.7 Production (mil. bu.) 12,092 13,092 12,447 12,310 Beg. Stocks 1,624 1,673 1,708 1,128 Imports 14 8 28 15 Total Supply 13,729 14,774 14,182 13,453 Feed & Residual 5,182 5,125 4,792 4,600 Ethanol 3,709 4,591 5,021 5,000 Food, Seed, & Other 1,316 1,370 1,407 1,410 Exports 1,849 1,980 1,835 1,600 Total Use 12,056 13,066 13,054 12,610 Ending Stocks 843 Season-Average Price ($/bu.) 4.06 3.55 5.18 6.70 Source: USDA-WAOB 11 11

U.S. DDG Supply and Use 2008 2009 2010 2011 Production (mil. metric tons) 28.6 35.4 38.7 38.6 Imports 0.3 0.4 Total Supply 28.9 35.8 39.2 38.9 Domestic 23.9 27.5 30.9 32.1 Exports 5.0 8.3 6.8 Total Use 39.1 Average Price ($/ton) 122 113 179 207 My estimates, so take with a grain (or pound) of salt 12 12

U.S. Soybean Supply and Use 2008 2009 2010 2011 Area Planted (mil. acres) 75.7 77.5 77.4 75.0 Yield (bu./acre) 39.7 44.0 43.5 41.3 Production (mil. bu.) 2,967 3,359 3,329 3,046 Beg. Stocks 205 138 151 215 Imports 13 15 14 Total Supply 3,185 3,512 3,495 3,275 Crush 1,662 1,752 1,648 1,635 Seed & Residual 106 110 130 120 Exports 1,279 1,499 1,501 1,325 Total Use 3,047 3,361 3,280 3,080 Ending Stocks 195 Season-Average Price ($/bu.) 9.97 9.59 11.30 12.60 Source: USDA-WAOB 13 13

U.S. Soybean Meal Supply and Use 2009 2010 2011 Production (thou. short tons) 41,707 39,658 38,835 Beg. Stocks 235 302 350 Imports 160 190 165 Total Supply 42,101 40,150 39,350 Domestic 30,640 30,750 30,500 Exports 11,160 9,050 8,550 Total Use 41,800 39,800 39,050 Ending Stocks 300 Season-Average Price ($/short ton) 311.27 347.50 375.00 Source: USDA-WAOB 14 14

Feed Pricing Source: USDA-AMS

Corn vs. Wheat Source: CME Group, 12/5/2011

Change of Export Pace

DDG Exports Source: USDA-FAS

Soybean Meal Export Sales Source: USDA-FAS

Renewable Fuels Standard (RFS) Crop Year Billion Bushels 2011 4.64 2012 4.86 2013 5.07 2014 5.29 20 20

Corn Grind for Ethanol Source: DOE-EIA

Projected 2011 Season-Average Corn Price

Projected 2011 Season-Average Soy Price

Projected 2012 Season-Average Corn Price

Projected 2012 Season-Average Soy Price

Iowa Corn Prices vs. Costs

Iowa Soybean Prices vs. Costs

Principal Crop Area Source: USDA-NASS

States with Room to Grow Number is the difference in planted acres between 2008 and 2011

Iowa Crop Margins

Thoughts for 2012 and Beyond General economic conditions Continued worldwide economic recovery is a major key for crop prices US job recovery, European financial concerns, Chinese inflation Supply/demand concerns Smaller than anticipated U.S. crops, worries about dry conditions Biofuel growth and energy demand Corn has the upper hand in the acreage competition Will supply be able to keep pace with demand? 2011/12: USDA: Corn $6.70; Soy $12.60 Futures (as of 12/5/11): Corn $5.71; Soy $11.18 2012/13: Futures (as of 12/5/11): Corn $5.38; Soy $11.13

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/