1. Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia www.ssu.missouri.edu/faculty/RPlain Hog Market Forecast 2004 Iowa Pork Congress

3. U.S. Per Capita Meat Consumption Retail Weight, 1960-2003

5. Compared to 1960 Today, the average American annually consumes 59 pounds more meat, 57 pounds of which is chicken.

6. One Cow in Alberta On May 20, Canada announced they had found a cow in Alberta with BSE. Most countries immediately stopped importing Canadian cattle and beef. 9% of the beef Americans ate in 2002 came from cattle born in Canada

9. One Cow in Washington On December 23, USDA announced they had found a cow in Washington with BSE. Most countries immediately stopped importing U.S. cattle and beef. 9% of U.S. beef production in 2002 was exported

10. April 2000 was record high

11. February 2000 was record high

14. U.S. Pork Production, 1930-2002 Trend: +1.5%/year

15. Pork Production & Profitability In those years after 1964 when pork production was below the 1.5% trend, Iowa hog producers averaged a profit of $14.99 per hog sold. In those years after 1964 when pork production was above the 1.5% trend, Iowa hog producers averaged a net loss of $0.22 per hog sold.

16. Iowa Farrow to Finish Profits, 1965-2003 Source: John Lawrence, Iowa State University

17. Iowa Farrow to Finish Profits 1967-78 $15.61 per hog sold Source: John Lawrence, Iowa State University

18. Iowa Farrow to Finish Profits 1967-78 $15.61 per hog sold 1979-90 $ 9.57 per hog sold Source: John Lawrence, Iowa State University

19. Iowa Farrow to Finish Profits 1967-78 $15.61 per hog sold 1979-90 $ 9.57 per hog sold 1991-02-$ 0.04 per hog sold Source: John Lawrence, Iowa State University

20. Iowa Farrow to Finish Profits, 1994-2003 Source: John Lawrence, Iowa State University The typical U.S. producer has lost money 22 of last 26 months

21. Correlation of Daily Hog Slaughter & Lagged Profit

22. U.S. Pork Industry Structure Study, 2001 U.S. Marketings by Producer Size Hogs marketed annually19881991199419972000 Under 1,000 32% 23% 17% 5% 2% 1,000-1,999 19 20 1712 7 2,000-2,999 11 13 1210 5 3,000-4,999 10 12 1210 7 5,000-9,999 9 10 121010 10,000-49,999 12 13 131618 50,000 & up 7 9 173751 University of Missouri, Iowa State University, National Pork Board, Pork magazine, PIC, Land O’Lakes, Dekalb Choice Genetics, and Research Institute for Livestock Pricing

23. U.S. Pork Industry Structure Study, 2001 University of Missouri, Iowa State University, National Pork Board, Pork magazine, PIC, Land O’Lakes, Dekalb Choice Genetics, and Research Institute for Livestock Pricing. Size Class (no. head) Percent Percent of Farms with a Profit in 2000

24. Changes in industry structure The modern hog industry is more difficult to downsize than the traditional industry

25. January-December 02 Hog Prices Carcass Price Negotiated base price$45.54/cwt Average net price$49.70/cwt Source: USDA/AMS Prior Day Slaughter Reports, simple average January-December 2003 Hog Prices Carcass Price Negotiated base price$52.00/cwt Average net price$55.21/cwt

27. Barrow & Gilt Sales % of marketings 20022003 Negotiated hogs14.6613.28 S/P Market formula43.3939.15 Other market formula 9.27 7.63 Other purchase agreement13.0119.01 Packer sold 2.24 2.11 Packer owned17.4218.82 Source: USDA/AMS Prior Day Slaughter Reports

28. National Net Hog Prices US$ per 100 pounds of carcass weight 2002 2003 Negotiated hogs $47.02 $53.52 S/P market formula $48.71 $54.65 Other market formula $51.32 $56.04 Other purchase agreement $54.87 $57.20 Packer sold $51.02 $57.40 Source: USDA/AMS Prior Day Slaughter Reports, simple average

29. Prior Day Base Price for Negotiated Purchases 2002 2003 National report$45.04$51.82 ECB report$44.59$51.54 WCB report$45.34$51.95 Iowa-Minn report$45.29$51.85 –ECB/national premium-$0.45-$0.28 –WCB/national premium $0.30 $0.13 –I-M/national premium $0.25 $0.03 Source: USDA/AMS Prior Day Purchased Reports

30. January-December 03 Hog Prices National Base Price for Negotiated Purchases Morning report$51.39/cwt Afternoon report$51.69/cwt Prior day report$51.82/cwt –Afternoon/morning premium$0.30 –Prior day/morning premium$0.43 Source: USDA/AMS Hog Price Reports

31. Share of Reported Negotiated Hogs Source: USDA/AMS National Hog Price Reports

32. Mandatory Price Reports The law creating the USDA/AMS mandatory cattle-beef-hog price reports expires in October 2004.

33. The Hog Cycle

34. U.S. Commercial Hog Slaughter Quarterly Data, 1970-2003 U.S. pork production is becoming more predictable

35. Terminal Market Barrow & Gilt Price Quarterly Data 1970-2003 But, U.S. hog prices are still highly variable

36. ELASTICITY The fundamental relationship between hog production and hog price is changing.

37. Hog Price Flexibility Quarterly Data 1970-2003 % ch T Mkt B&G price / % ch com hog slt

38. In the last 6 years live hog prices have stayed between $8/cwt and $68/cwt… and there is a good chance they will trade within this same range most of the time in the next 6 years

39. Seasonality

42. July-November Changes Daily Pork Production 1970s+30% Barrow & Gilt Prices 1970s-11%

43. July-November Changes Daily Pork Production 1970s+30% 1980s+24% Barrow & Gilt Prices 1970s-11% 1980s-13%

44. July-November Changes Daily Pork Production 1970s+30% 1980s+24% 1990s+20% Barrow & Gilt Prices 1970s-11% 1980s-13% 1990s-20%

45. Production Efficiency

46. Pigs Per Litter, 1930-2002 USDA Hogs & Pigs Reports

47. Pigs Per Litter, By Herd Size, 1996-2003

48. Litters Per Sow Per Year, 1930-2002

49. Average Hot Carcass Weight, 1965-2002

50. Annual U.S. Pork Production Per Sow, 1960-2002 +4% per year

51. Sow & Gilt Inventory, 1996-03

53. Pigs Born in Canada, 1996-03

54. Canadian Hog Production, 1976-02

55. Terminal Market Barrow & Gilt Prices, 1950-2003

56. Deflated Barrow & Gilt Prices, 1950-2003

57. Cost of Production

59. Cost of Slaughter Hog Production Iowa State University Calculations, 1987-2003

61. International Trade

62. Source: USDA/FAS

64. Taiwan broke with FMD in March 1997 Source: USDA/FAS

65. Vulnerable Pork Exporters Country 2002 Exports 1000 m tons Exports as % production Canada 863 46.8% Hungary 125 26.0% Brazil 590 23.0% U.S.A. 731 8.2% E.U. 1194 6.7% Poland 93 5.7% Source: USDA/FAS

67. Top 12 Pork Producing Countries - 2002 Thousand Metric Tons 1. China43,266 7. Russia 1,630 2. E.U.17,825 8. Japan 1,236 3. U.S.A 8,929 9. S. Korea 1,153 4. Brazil 2,56510. Philippines 1,095 5. Canada 1,85411. Mexico 1,085 6. Poland 1,64012. Taiwan 900 Source: USDA/FAS

68. Top 12 Pork Producing Countries - 2002 Percent Change from 1997 1. China20.3% 7. Russia 3.8% 2. E.U.12.1% 8. Japan -3.7% 3. U.S.A14.0% 9. Mexico 15.4% 4. Brazil66.6% 10. Philippines 21.5% 5. Canada46.8% 11. S. Korea 32.1% 6. Poland 6.5% 12. Taiwan -12.6% Source: USDA/FAS World16.2%

69. Pigs Per Breeding Animal, 1996-03

70. 2002 was the 11th consecutive record year for U.S. exports

71. U.S. Pork Imports & Exports, 1998-2003

72. U.S. Pork Exports By Destination 2002

73. U.S. Pork Imports By Origin 2002

74. U.S. Pork Exports, Jan-Nov 03 Country% Ch Yr Ago Japan + 4.0% Mexico + 6.7% Canada - 0.4% S. Korea + 16.8% Total + 6.3%

77. Exchange Rate: Can $ Per US $

78. Sows Farrowed-U.S. & Canada Combined

79. Estimated Gilt Retention & Sow Loss, 2001-2003 GG Cattle & Hog Fax

80. Average Daily Sow Slaughter

81. Sow & Boar Imports

82. Average Daily Slaughter Domestic Sows

83. USDA Dec Hogs and Pigs Report

84. Actual & Predicted Change in Hog Slaughter U.S. Weekly F.I. Hog Slaughter, 2003-04

86. Cold Storage Stocks – 12/31/03 Percent Change From Year Ago Pork:up 0.5% Beef:down 24.5% Chicken:down 20.7% Turkey:down 13.0%

87. Terminal Market Barrow & Gilt Price

89. U.S. Weekly F.I. Hog Slaughter

92. Forecast: Slaughter Up in 2004 Note: Q1 04 has 1 extra slaughter day Note: Q4 04 has 1 less slaughter day

93. Iowa-Minn Live Hog Price Forecast Negotiated Base Price Per Live Hundredweight 2003 Q1*$34.19 Q2*$41.80 Q3*$41.40 Q4*$36.89 Year*$38.57 2004 Q1$36-39 Q2$39-42 Q3$38-41 Q4$32-35 Year$36-39 *actual price – prior day purchased

94. Iowa-Minn Carcass Price Forecast Negotiated Base Price Per Carcass Hundredweight 2003 Q1*$46.20 Q2*$56.48 Q3*$55.95 Q4*$49.85 Year*$52.12 2004 Q1$49-52 Q2$53-56 Q3$51-54 Q4$45-48 Year$49-54 *actual price – prior day purchased

95. Summary of the Good News Pork exports are strong Domestic meat demand is up Adequate slaughter capacity

96. Survival It is not the strongest of a species that will survive, nor the most intelligent; but the most adaptable to change. --Charles Darwin