1. Pork Management Conference – June 2014
Meat Sector Situation and Outlook

2. Current situation is the culmination . . .
. . . of along series of events/mishaps
Quantum upward shift of grain prices in 2007 – directly attributable to biofuels
The Great Recession and its impact on demand -- foodservice/retail split
Drought conditions in cow/calf areas for much of the past decade – and !
History catches up with the 2012 crop
PEDv
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3. Key Issues for 2014 and beyond
Costs: Are The Bad Times Really Over For Good?
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4. World corn prod & cons are record high. . .
. . stocks are highest since ‘00 – and growing
6/20/2013

5. U.S. biofuels policy fueled growth and . . .
. . . world competition in corn will continue
6/20/2013

6. World soybean supply situation is similar . . .
. . . Record high output, consumption, stocks
World output +6.2% in ‘13-’14
Consumption +4.4%
Ending stocks +20%, S/U tied for 3rd high

7. SB prices will remain stronger than corn . . .
. . . largely due to China’s appetite & means

8. Quantum downward shifts for corn & beans!
Note relative drop in corn vs. SBM – disadvantage to poultry first, then hogs
Planting risk, SB competition premiums are gone from corn – some weather risk remains
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9. ‘14 costs will be $80-82 as half of year is in. . .
. . . ‘15 costs <$80 – expect more in $70-$80
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10. Key Issues for 2014 and beyond
Grain Prices and Costs – Are The Bad Times Really Over For Good?
Demand – Can We Make This Last?
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11. U.S. economy is still slow – but growing yr/yr!
. . . Q1 was LOWER than Q4-13 though – Weather?
Data Source: U.S. Bureau of Economic Analysis
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12. Some decent employment gains in 2013 . . .
. . . Jan slowed but Feb, Mar & April are >200k
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13. Unemployment is falling -- 6.3% in April . . .
. . . U-6 is down to 12.3% but was 10% in 2008
Data Source: Bureau of Labor Statistics
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14. . . . January was good but growth has slowed
2013 RPDI growth averaged 0.1% . . .
. . . January was good but growth has slowed
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15. Per cap cons.: -10% vs. ‘04, flat thru ’15 . . .
. . . But this is a function of PRODUCTION!
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16. The evidence of strong demand is PRICES . . .
. . . Records set in 2013 and already in ‘14 with more to come
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17. Demand indexes were ALL higher for 2013!
. . . First time that has ever happened
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18. Meat/Poultry RPCE was higher all of 2013
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19. January meat/poultry RPCE was soft . . .
. . . Feb was better and March was very good
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20. March was a positive yr/yr month . . .
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21. Consider the determinants of demand. . .
Incomes
More money = more quantity purchased for “normal” goods
But incomes are stagnant
Prices of competitors and complements
Meat prices rose more than CPI in 2013
Beef lost, chicken gained, pork was a wash
Only factor left is consumer tastes and preferences
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22. And things are MUCH better for fats . . .
. . . protein is in, carbs are out
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23. “People will stop eating pork/beef at these prices!”
Some will stop and some will eat less BUT THEY MUST because less is available
Habits, though, are important!
Price
Quantity/Time P2 P1 Q1 Q2 D S1 S2
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24. Pork exports exploded in March . . .
. . . Fell 12% in April but still +10% yr/yr & YTD
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25. Big April story was the sharp drop for China/HK
% yr/yr, Canada & Japan +12%, Korea +90%
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26. Key Issues for 2014 and beyond
Grain Prices and Costs – Are The Bad Times Really Over For Good?
Demand – Can We Make This Last?
Competitors – Will Anyone Take Advan- tage of the Situation? Can They?
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27. Old flock = fewer, lower quality eggs . . .
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28. Slaughter, production are UNCHANGED vs. ‘13. . .
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29. Chicken prices are MUCH better = PROFITS! . . .
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30. Beef herd: Full expansion mode IF POSSIBLE
Will range/pasture conditions be good enough in critical areas???
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31. Jan Cattle report: Expansion begins . . .
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32. . . . Feeder supply is down 3%, yr/yr – record low
Placements are coming from a TIGHT supply
. . . Feeder supply is down 3%, yr/yr – record low
Livestock Marketing Information Center
Data Source: USDA-NASS
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33. Feb placements were +15%, March and April were -5%
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34. Beef consumption/supply will be -5.3% yr/yr . . .
And down another 3% in 2015!
Livestock Marketing Information Center
Data Source: USDA-NASS
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35. RECORD-HIGH cutout values – again this week!
Weekly averages have returned to $220s
We expected $215-$225 for cutouts thru June – but Choice was $232 last week!
Pork prices are now HELPING beef
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36. March H&P: Bearish vs. expectations!
. . . But definitely picked up some PEDv impact
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37. Monthly data – BIG drop in litter size but . . .
. . . a slight (curious) improvement for Feb
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38. The devil is in the details, though . . .
March H&P would put quarterly 2014 slghtr totals down 2.1, 3.4, 4 and 2.9% yr/yr.
IMPLICATION: Higher weights would leave ‘14 production very near 2013 levels
March slaughter was down 6.7% while inventory was down 4.8%
AND SEP-NOV PIG CROP WAS UNCHANGED
Dec-Feb pig crops in MN, IA and IL were + 5, +2 and +3% yr/yr IN SPITE OF WIDESPREAD PEDV LOSSES
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39. Latest PEDv info – thru June 7 – shows improvement
U.S.: new low of 138 wk. ended 5/7
IL & MN have seen big declines
Will IA decline (to just 20!) last??
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40. Used suckling pig cases to distribute . . .
. . . total pig losses over time
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41. April data still imply HUGE Jul-Sep cuts . . .
Assumes 58% of sows infected
2.7 pigs lost per sow -- conservative
Total loss is now near 8 million pigs
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42. Rabobank makes me look like an OPTIMIST!
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43. Actual slaughter declines have been larger
. . . Partially due to delayed mktg/higher wts
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44. UM survey of 16 systems – 58% of herds pos.
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45. Same number of herds in March as Oct ???
. . . Does that mean Sept will be like April???
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46. But consider . . .
The 9 named systems had 741,300 sows according to SF’s ‘13 Powerhouses
Only Christensen, Seaboard and ISF are among the top 10
The other 7 must have roughly 1.76 mil-lion sows – and must all be in the top 10
Geographic locations imply that the UM sample has high proportion in NC and OK – and roughly one-third in Midwest
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47. If Midwest incidence is the same . . .
National cases with new MW number
Total MW cases
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48. U.S. sow slaughter is down 6.0% YTD . . .
. . . Gilt share of slaughter mix surged in April ?
94k sounded like a lot of growth from Dec through Feb but the females were available
Immune sows have value – an incentive to keep them!!!
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49. Bigger hogs is a trend, but these increases . . .
. . . are unusual, as were steady wts. of ‘07-’08, ’12
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50. Cutout and hog values have likely TOPPED . . .
. . . Peaks at $130+ were too high – time rationing?
Year-ago prices were too low — Russia, China
Summer highs were originally expected at $105-$110
I’m still at $120-$125 given PEDv losses
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51. Slaughter forecasts – per accession data . . .
. . . And some allowance for March H&P report
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52. Weekly forecasts – me and USDA and USDA . .
. . . Has been VERY good 5 of past 7 weeks
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53. Actual, USDA and Paragon only . . .
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54. Price forecasts as of March Hogs & Pigs . . .
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55. Closing thoughts . . . PEDv is not just a short-term hit
No proven effective vaccine in sight
What about NEXT winter?
When does the industry decide to build production capacity to overcome PEDv?
What happens when a solution is found?
Beef per cap supply/consumption will be permanently smaller
Chicken output/consumption could make another quantum leap
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56. Questions or Comments?
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