1 Livestock Outlook and Economics Brenda L. Boetel University of Wisconsin – River Falls August 2008

2 Implications for livestock Cost of production lower than one month ago –Lower oil costs –Softer commodity market –Steadily improving crop conditions Value of dollar increases has bearish tendencies for corn price –Also for beef prices

3 Cattle Situation and Outlook

4 Domestic beef demand has been relatively decent Expect increase for labor day Cutout value supported by higher chuck and round values relative to rib and loin values –Supports idea that demand for higher quality beef is softening

5 Spread has increased since this spring Determined by supply and demand for Choice and for Select meat – –Demand for choice is down, supply is up

6 What will happen to beef demand? Beef is more affected than any other protein by the economic situation Look for weaker domestic demand International demand will depend on alternative protein production, value of the dollar, trade restrictions

7 Exports have increased (Jan – June was up 31%) Imports are down (Jan-June down 22%) Per capita beef supplies likely be down 2% for 2008

8 Record high fed cattle prices and more are expected Slaughter price likely 3% above 2007 Fed cattle producers will see red ink –Cow-calf will have worst year in a decade

9 Smaller cattle supplies have supported calf and feeder cattle prices Higher corn prices have depressed prices, particularly calf prices Higher byproduct prices Lower margins for packers

10 COF declining COF down 4% from August 2007 and 9% from July 2006

11 Placements were 2% above July 2007, but 15% below July 2006

12 Where are we headed? Commercial slaughter is expected to be smaller than year ago in Q3 and Q4 Placements of heavier weight feeder cattle will delay fed cattle marketings into early next year Beef production is expected to be lower by 2.5% in Q4 Have continued strong byproduct prices

13 Cattle supplies are tight, but pork and poultry supplies are not 2008 and 2009 will likely be record years Fourth Quarter 2008 and First Quarter 2009 will be problematic

14 Projections for 2008 Choice Boxed Beef –Decline to around $150-$155 –Q3-Q4 may be as low as $140-$145 –Spring will rebound to early 2008 levels Choice-Select Spread –More choice beef –Look for spread to remain narrow –May approach 0 in late fall/winter

15 Projections Live cattle (5 market) –Q $97-99 –Q4 2008$ –Q1 2009$94-98 –Q2 2009$ Beef and cattle prices should remain fairly stable for remainder of year

16 Longer Term Outlook All cattle inventory slightly down from July 2007 Beef cow numbers are down 1% from July 2007 – –Domestic cow slaughter increased causing liquidation

17 Heifers held for beef cow replacements down 2% Beef cow numbers indicate where herd is going – –Beef heifer retention is precursor – –Both are down, indicates fewer beef calves for next two years Number of heifers on feed was down 3% while steers down 5% from July 2007 – –Reduced heifer retention – –Likely see a decrease in January 2009 cow herd

18 High fat cattle prices support higher feeder cattle prices High corn/forage prices do NOT support high feeder cattle prices With good rainfall, many cattle will be on wheat pastures this fall –Increase yearling price volatility –May be swings in fed cattle prices next summer Economy and competing meat supplies will drive beef prices Barring a total economic collapse, cattle prices will have to increase to encourage expansion Smaller beef production in 2009 –Increased heifer slaughter –Decreased steer slaughter –Decreased cattle imports –Increased exports Improving world economy means increased demand for beef and other proteins Value of dollar Producers can look for stable to increasing prices for next 2-3 years Summary and Implications

19 Things to watch for Extent for foreign demand – especially Asia U.S. imports Feed grain and forage prices, particularly demand for corn for ethanol Rate of U.S. beef cow slaughter

20 Other Issues Increasing demand for beef from alternative production systems –Natural –Organic –Grass-fed Increasing demand for locally produced foods Animal welfare MCOOL/NAIS

21 Hog Situation and Outlook

22 Hog kill was up 7% in June 2007

23 Weights are down from Jun 2006 (but only by 1 to 2 pounds)

24 Pork production was up 7% from Jun 2006 YTD pork production is up 10.3%

25 U.S. sow herd growth of 1-2% for the past 11 quarters – until June H&P report Breeding inventory down 1% from last year, down 1% from last quarter Big sow slaughter surge in late June What are reasons for higher supply?

26 March-May pig crop was up 4% from 2007, up 9% from 2006 Average pigs per litter June-August was 9.38 Good results occurring with circovirus vaccine

27 Year to date, feeder pig imports are up 14%

28 Market hog imports have been below 2007 since April Year to date imports are down 8% Week comparison is down 51%

29 Reasons for higher supplies U.S. sow herd growth of 1-2% for the past 11 quarters – until June H&P report Growth in litter size and dramatic rebound of litters per breeding animal Higher imports of Canadian feeder pigs and market hogs – but this will end soon Effective circovirus vaccines –Smaller death loss –Fewer light weight hogs –Better growth rates

30 June Quarterly Hogs & Pigs Report

31 Slaughter was going down in June Will have much higher slaughter for the rest of the year

32 June 2008 Commercial Slaughter Forecast

33 Pork Demand Excellent pork demand through April May and June had decreases in pork demand Retail prices increased (but did not keep pace w/inflation – real price fell) Record exports - YTD up 60%, May up 98%

34 Currently 2008 prices are higher than 2007 May see seasonal top this week

35 Very high cutout values Packer margins are high (Highest gross margin since 1999)

36 Price Forecasts Iowa (July)Meyer (July)LMICCME Ia-S. MN Live Price National Net Negotiated Price, Avg. Wtg. National Avg. Weighted Base Price CME Lean Hog Futures 2008 Q1$53.55$53.19$55.11$54.26 Q2$72.47$71.39$69.84$71.66 Q $76.55 Q $75.77 Year Q $81.45 Q $84.70

37 Where are we headed? Hog producers will see more losses for the remainder of the year What can producers do? Watch corn and soybean market in order to move on lower prices Try to minimize losses

38 Sources Graphs –LMIC – Data –USDA- NASS