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Beef & Pork Industry Profit Picture for 2014‐2015 Webinar, February 24, 2014

Beef & Pork IndustryProfit Picture for 2014‐2015

Dr. James MintertDr. Chris Hurt

Dr. Michael Langemeier

Email questions to : [email protected]


Beef Industry Outlook

Dr. James MintertDirector, Purdue Center for Commercial Agriculture &

Purdue Extension Economist



Record Net Farm Income in 2013But Income Will Decline Sharply in 2014

$0

$20

$40

$60

$80

$100

$120

$140

89 91 93 95 97 99 01 03 05 07 09 11 13

Billion

$

Year

U.S. Net Farm Income

Source: USDA, Agricultural Projections, USDA Forecast for 2014


U.S. Cattle Herd Continues to Decline

50

60

70

80

90

100

110

120

130

140

75 80 85 90 95 00 05 10

Million

Head

Year

U.S. Cattle InventoryJanuary 1, 1975-2014

Source: USDA

Jan. 1, 2014 inventory = 87.73 million headInventory was 1.8% smaller than on Jan. 1, 2013And 9% smaller than on Jan. 1, 2006Smallest inventory since 1951


Industry’s “Factory” is Shrinking

28

29

30

31

32

33

34

35

36

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Million

Head

Year

U.S. Beef Cow InventoryJanuary 1, 1995-2014

Source: USDA

Jan. 1, 2014 inventory = 29 million headInventory was 1% smaller than on Jan. 1, 2013And 11% smaller than on Jan. 1, 2006


Leading to Slaughter Reductions

28

29

30

31

32

33

34

35

36

37

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Million

Head

Annual U.S. Commercial Cattle Slaughter

Year

Source: USDA, LMIC Forecasts for 2014 & 2015

Slaughter in 2015 could fall 10% below 2013’s!


22

23

24

25

26

27

28

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Billion

Lbs.

Year

Annual U.S. Beef Production

Source: USDA, 2014 & 2015 LMIC Forecasts

And Smaller Beef Production

Beef production in 2015 could fall 9% below 2013’s!


50

52

54

56

58

60

62

64

66

68

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Lbs.

Per

Capita

Year

Annual U.S. Retail Beef ConsumptionPer Capita

S K-State Dept of Ag. Econ.www.agmanager.infoSource: USDA & LMIC, 2014-2015 Forecasts

Strong Exports & Declining Production Pushing U.S. Retail Supplies Down

Per capita supplies in 2014 could decline 5% from 2013’s


Reduction in Supplies to U.S. ConsumersWill Push Fed Cattle Prices to Record Levels

55

65

75

85

95

105

115

125

135

145

95 97 99 01 03 05 07 09 11 13 15

$

per

Cwt.

Year .

Kansas Slaughter Steers Annual Average Prices .

Source: USDA-AMS, LMIC Forecasts for 2014-2015


Tight Calf Supplies, Record High Fed Cattle Prices & Lower Feed Costs Will Lead to Record High Calf Prices


But Beef Will Lose Market SharePoultry and Pork Will Gain as Total Meat Consumption Starts to Recover

195

200

205

210

215

220

225

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Lbs.

per

person

Year

Annual U.S. Red Meat & Poultry ConsumptionPer Capita

Source: USDA, LMIC Forecast for 2014 & 2015


Pork Industry Outlook

Dr. Chris HurtProfessor of Agricultural Economics &

Purdue Extension Economist



PED‐VIn U.S. since spring 2013

a. More testing b. More herds infected since fall 2013c. Common to hear: near 100% loss for three weeks

Canada this fall/winterMexico this winter

Impacts!1. Reduced supply:

a. Fourth quarter 2013 pigs per litter about 2% below trendb. After that‐‐‐‐Unknown

2. Corn Use?

3. Pork Supplies in Forward Years?


Like many food products, Pork has an INELASTIC Demand

When there is a short supply consumers are slow to cut back on their consumption

Measured with the Price Flexibility which is the Percentage change in price when the quantity changes by 1.0%

For live hogs that is about a 2.2% increase in price for each one percent that quantity changes.

If supply is down by 4% then prices might be about 8.8% higher. If the market felt prices would be $72 live before PED‐V then a 4% reduction in supply might raise live prices about $6.35 to $78.35

Smaller Supplies from Disease Can Increase Industry Revenue


Hurt Estimate

Pork Of Current

Farrowing PPL Head Weight Supply Futures

I -0.4% 2.5% 2.1% -4.3%

II -1.0% 2.5% 1.5% -7.7%

III 1.3% -3.0% -1.7% 1.8% 0.1% -1.1%

IV 1.4% -2.0% -0.6% 0.5% -0.1% 0.6%

Average .9% -3.1%

PED‐V and Pork Supplies??? When????


2/21/14FUTURES ForecastNational 2/10/2014Carcass Live USDA:ERS

2013 I 76.66 59.03II 85.01 65.46III 91.68 70.59IV 81.17 62.50

Avg 13 83.63 64.40 64.052014 I 86.99 66.98 59-61

II 102.60 79.00 64-68III 97.44 75.03 63-69IV 83.32 64.16 57-61

Avg 14 92.59 71.29 61-652015 I 81.02 62.38

II 86.54 66.64


$62

$66

$70

$74

$78

$82

$86

$90

$94

$98

$102

$106

$110

1 2 3 4 1 2 3 4 1 2 3 4 5 1 2 3 4 1 2 3 4 5 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 5 1 2 3 4 1 2 3 4 1 2 3 4 5

Jan Feb Mar Ap May June July Aug Sept Oct Nov Dec

Futures Forecast for 2014 Eastern Corn Belt Lean Hog Prices (February 21, 2014)

2014

2013

2013 = $85 or $65.50 live

2014 = $91.59 or $70.52 live


My Guess about PED‐V & 2014 Industry Costs and Returns

PED‐V will result in higher Industry revenues & costs

PED‐V Impact on Individual Producers?

1. Hard hit PED‐V Producer: Losses could exceed the benefits from the hog price increases! Depends on magnitude of losses versus higher prices.

2. Average PED‐V loss Producer: Benefits of hog price increases will likely exceed losses from disease (Industry‐wide result)

3. No PED‐V or light loss Producer: Benefits of hog price increases will strongly exceed any losses.


PED‐V Impact on Corn Consumption?????

3% of 29.3% of corn feed use =

About 45 million less bushels of corn use

Source: USDA GCAU


43

48

52 5350

3940

53

57

4243

39

50

6060

50

6971

65626261

5959

65

71

63

67

79

75

6462

67

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 26 7 8 9 10 11 12 13 14 15

$/cw

tPurdue Estimated Hog Prices and Costs Per Live Hundredweight:

Hog Price

Costs


$58

$49

-$40

-$30

-$20

-$10

$0

$10

$20

$30

$40

$50

$60

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2

7 8 9 10 11 12 13 14 15Pro

fits/

Loss

Per

Hea

dEstimated Profits/Loss Per Head: 2007-2015

Purdue: February 2014


Feed Costs

Dr. Michael LangemeierAssociate Director, Purdue Center for Commercial Agriculture

&Purdue Extension Economist



0

20

40

60

80

100

120

Monthly Hog Finishing Feed Cost Indices, 2000 to 2013

Feed Cost Index 2000‐2006 Price 2007‐2013 Price


0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annual Hog Finishing Feed Cost Indices, 2000 to 2016Actual Projected


400

300

200

100

0

100

20004

.01

04.04

04.07

04.10

05.01

05.04

05.07

05.10

06.01

06.04

06.07

06.10

07.01

07.04

07.07

07.10

08.01

08.04

08.07

08.10

09.01

09.04

09.07

09.10

10.01

10.04

10.07

10.10

11.01

11.04

11.07

11.10

12.01

12.04

12.07

12.10

13.01

13.04

13.07

13.10

$

Per

Head

Closeout Month

Historical Net Returns for Finishing Steers, KansasSource: Michael Langemeier, Purdue University


0

20

40

60

80

100

120

140

16004

.01

04.04

04.07

04.10

05.01

05.04

05.07

05.10

06.01

06.04

06.07

06.10

07.01

07.04

07.07

07.10

08.01

08.04

08.07

08.10

09.01

09.04

09.07

09.10

10.01

10.04

10.07

10.10

11.01

11.04

11.07

11.10

12.01

12.04

12.07

12.10

13.01

13.04

13.07

13.10

$

Per

Cwt

Closeout Month

Feeding Cost of Gain for Steers, Kansas2004‐2013

Source: Focus on Feedlots Newsletter


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