the 2009 food commodity outlook report - american restaurant

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THE 2009 FOOD COMMODITY OUTLOOK REPORT

June 16, 2009 Issue 4 A Detailed Quarterly Research and Forecast Analysis for the Beef, Chicken, Dairy,

Pork, Grains, Shrimp, Salmon, Canned Tomato and Coffee Markets for 2009. Chief Analyst- David Maloni- American Restaurant Association Inc.

Published By American Restaurant Association Inc., 888-423-4411 or www.AmericanRestaurantAssociation.com

Overview

Index

Index

We are at a historic period in the protein and dairy industries. As we suggested back in the spring of 2006, inflated feed costs have led to declines in production for the major protein and milk industries. Poor margins have forced many producers to cut back their herds and flocks to limit losses and try to influence prices higher to return profitability. Chicken production is projected to decline in 2009 by the largest volume by far in the last 49 years. Pork and beef output are forecasted to decline as well marking the first time in at least the last 38 years that pork, beef and chicken production annually slow at the same time. And milk output is joining the party this year as well with annual production expected to decline by the most in at least the last 18 years. What’s been even more remarkable is that over the last few months the major culprits of the declines in protein and dairy production, elevated corn and soybean prices, have actually risen notably due to crop challenges and expectations of tight supplies. But despite all this the major story is still demand. Extremely poor dairy exports, HINI slowed pork trade, and lackluster food service and retail sales, especially for high end products, have all caused most of the markets to trade below or only modestly above 2008 levels. The concern going forward is that the chicken wing market, which has traded at record high levels this spring, could be the canary in the coal mine. If production continues downward the rest of the protein and dairy markets will likely eventually follow the 2009 wing market’s feat.

Overview Soybeans Page 2 Soybean Oil Page 3 Corn Pages 4-5 Current Situation Page 4 What to Monitor Page 4 Outlook Page 5 Wheat Page 6 Dry Beans Page 7 Rice Page 7 Coffee Page 8 Beef Pages 9-16 Current Situation Pages 9 What to Monitor Pages 10-12 Outlook Pages 13-16 Pork Pages 17-21 Current Situation Pages 17 What to Monitor Pages 17-18 Outlook Pages 19-21 Dairy Pages 22-25 Current Situation Page 22 What to Monitor Page 22-23 Outlook Pages 24-25 Chicken Pages 26-31 Current Situation Page 26 What to Monitor Page 26-27 Outlook Pages 28-30 Shrimp Page 31 Salmon Page 32 Tomato Product Page 33

THE 2009 FOOD COMMODITY OUTLOOK American Restaurant Association Inc. Food Commodity Economics from Farm to Plate

June 16, 2009


2

Soybeans The Current Situation

I. Existing Stocks- US soybean stocks are relatively tight. 2008/09 ending stocks (what’s left over at the end of the business day on August 31, 2009) are estimated at 110 million, less than 4% of total use.

II. Soybean prices have risen notably in recent months as the markets try to ration demand and entice farmers to add plantings for the upcoming crop.

What to monitor I. Soybean oil use for biodiesel fuel is declining due to depreciation in crude oil and diesel

prices. II. 2009 South American soybean crop. Current Brazilian production is forecasted at 57

million metric tons, 6.6% less than last year. Argentina output forecasted at 32 million metric tons, 30% less than the prior crop. Argentina and Brazil accounted for 77% of the world’s ending stocks from the 2007/08 crop.

III. Argentina farmers and government taxes on soybean exports. Export interruptions have occurred bringing uncertainty to buyers who have then, in some cases, turned to the US. Argentina is the world largest soybean oil and soybean meal exporter.

IV. Crude oil prices. Because soybeans (via soybean oil) are an energy crop as well, rapid deflation in the crude oil market has caused the soybean market to follow. Stability in crude oil would likely bring stability to soybeans. Appreciation in crude oil would likely bring appreciation to soybeans.

V. 2009/10 US plantings are forecasted at 79 million which would be 4.4% more than last year and a record.

VI. Consequently, soybean stocks are expected to improve this fall with the 2009/10 crop but still be historically limited due to the tight beginning stocks and the drought reduced crop in Argentina

VII. Soybean oil consumption is forecasted to build with the 2009/10 crop soybeans by 1.15 billion pounds but still be notably less than the 2007/08 crop.

The Outlook

I. Due to the tighter supply situation we have bumped our forecasts for 2009 soybean ($10, similar to the prior year) and soybean meal ($330, also similar to the prior year) modestly higher. The grain supply situation could remain tight into 2010/2011.


June 16, 2009


3

Soybean Oil The Current Situation

I. Existing Stocks- US soybean stocks are relatively tight. 2008/09 ending stocks (what’s left over at the end of the business day on August 31, 2009) are estimated at 110 million, less than 4% of total use.

II. Soybean prices have risen notably in recent months as the markets try to ration demand and entice farmers to add plantings for the upcoming crop.

III. Soybean oil markets as of early June remained well below prior year averages. IV. December US energy bill mandates that the US diesel blenders must utilize 500 million

gallons of biofuel in 2009. In 2008 we produced roughly 392 million gallons What to monitor

I. South American soybean crops which were historically small this year. There is hope for a notable rebound this winter.

II. US biodiesel production continues to operate with challenged margins. III. Crude oil prices. Lower crude oil prices could inhibit biodiesel producers’ profitability.

The USDA is currently forecasting biodiesel use for soybean oil at 2.2 billion pounds which would be the smallest in the last 3 years.

IV. Government policies and biodiesel. Mandates suggest a notable increase in soybean oil use for biodiesel could occur in the coming years. Still, biodiesel producers will need to become consistently profitable. Mandates could be adjusted

V. We are currently forecasting 2009/10 soybean planted acreage at 79 million which would be 4.4% larger than last year and a record.

VI. Consequently, soybean stocks are expected to improve this fall with the 2009/10 crop but be historically limited.

VII. Soybean oil consumption is forecasted to build with the 2009/10 crop soybeans by 1.15 billion pounds but still be notably less than the 2007/08 crop.

VIII. World palm oil prices and the US dollar. If the dollar continues to depreciate, soybean oil prices may need to appreciate to come into balance with the world palm oil market.

The Outlook

I. Soybean oil prices during the last few months have traded in the upper 30 to low 40 range. We have bumped our annual average forecast price higher for 2009 to $.34 which would be 31% less than 2008.


June 16, 2009


4

Corn The Current Situation

I. Corn demand is slowing due to the high prices experienced during the past few years. II. Both domestic and world stocks are in much better shape than a few months ago due in

part to the aforementioned sluggish demand. III. Corn demand for ethanol continues to grow with use from the 2008/09 crop estimated at

3.75 billion bushels- 24% more than the prior crop. IV. Current US ethanol production capacity is 12.6 billion gallons per year which could

utilize 4.35 billion bushels of corn. What to Monitor

I. Feed use. Feed use is expected to be rationed in 2008/09 falling 10% from the prior crop. II. Ethanol capacity is anticipated to rise 15% over the next 18 months to 14.5 billion gallons

annually. III. Ethanol producer margins, although poor during most of 2009, have modestly improved

as of late. Ethanol producer margins are expected to continue to suffer which could cause ethanol use of corn growth to decelerate.

IV. The Obama administration and ethanol. So far, President Obama appears to be pro ethanol.

V. The EPA’s decision to increase the blending percentage of ethanol in gasoline to 12% or more. If the EPA does decide to increase the percentage and mandated blending areas are required to do so it could be bullish for ethanol and corn.

VI. 2008/09 corn crop use for ethanol is currently forecasted at 3.75 billion bushels, 24% more than the prior crop.

VII. Crude oil prices have risen as of late which has helped boost ethanol prices and increased the financial incentive for gasoline blenders to utilize ethanol.

VIII. 2008/09 world corn stocks are projected to be the historically limited but are the best in 4 years.

IX. The above factor is bullish for exports however abundant feed wheat supplies could cause corn exports to decline. The USDA is forecasting 2008/09 US corn exports to fall 28% from the prior crop.

X. 2008/09 corn endings stocks are forecasted at 1.6 billion bushels, 13.2% of total use which is historically adequate.

XI. 2009/10 corn acreage is estimated at 83.5 million which if realized would be 3% less than 2008/09 but the 3rd largest acreage this decade.

XII. General economy and fund investment in the commodities. Could be erratic due to the uncertain US financial markets.


June 16, 2009


5

Corn…the outlook The Outlook

I. Corn prices have firmed in recent months due to the decline in acreage forecasted for the upcoming crop, planting delays and deflation in the US dollar. As it stands today, corn supplies should tighten considerably with the 2009/10 crop. The markets will need to ration some demand away unless the rest of this summer experiences ideal weather conditions. Thus, we expect that corn could trade near the $4 through the end of the year.


June 16, 2009


6

Wheat The Current Situation

I. The 2009 winter wheat harvest is underway with roughly 5% of the crop harvested. II. 2009 spring wheat planting is winding down but was behind. III. Both US and world wheat stocks have improved and are adequate IV. Wheat prices have risen as of late due to planting delays, a spring freeze and a devalued

US dollar. What to Monitor

I. World supplies are expected to continue to build with the current crop to their best in 8 years.

II. The USDA is forecasting 2009/10 crop exports to decline 11% from the prior crop III. US wheat available stocks should remain at normal levels this year for all products

including hard spring and durum unless we have further crop challenges. IV. Hard spring and durum wheat supplies are anticipated to tighten this fall but still be

adequate for demand.

The Outlook I. What supplies are anticipated to remain relatively adequate through the end of the year

despite planting delays for hard spring and durum types. Still, hard spring wheat prices could average above 2008 levels during the fall. But as annual averages wheat prices are forecasted to be roughly 20% less in 2009 compared to 2008.


June 16, 2009


7

Dry Beans The Current Situation

I. 2008 total dry bean harvest is projected by the USDA at 25.27 million hundred weight due to record yields. However, the 2008 crop was .4% less than last year.

What to Monitor II. Deflated grain prices will likely push more acreage to dry beans in 2009. III. Overall dry bean supplies are expected to remain historically tight.

The Outlook I. Dry bean supplies could remain restricted over the next few years. However, more

acreage could occur this year and demand has softened. Our forecasts are for 2009 dry bean prices to average at to modestly below 2008.

Rice

The Current Situation I. Rice prices have declined as of late as the supply/demand structure has improved. II. 2008/09 US rice crop yields are estimated at 6.85 thousand pounds per acre which would

be 5.2% less than the previous crop. The 2008/09 US rice crop is estimated at 203.7 million hundredweight which would be the largest in 3 years.

What to Monitor I. The 2009/10 US rice plantings are projected to rise 6% from a year ago. II. US demand due to the challenged economy. US long grain rice consumption is

forecasted to rise 7% this year. World consumption is projected to increase as well. III. Long grain rice supplies are expected to notably build with the upcoming crop.

The Outlook I. Long grain (25%) and medium/short grain (40%) are forecasted to average well above

2008 this year due to increases in consumption and fairly tight ending stocks. Some price relief could be pending this fall.


June 16, 2009


8

Coffee The Current Situation

I. 2008/09 world coffee output is estimated by FAS at 138.4 million bags which is 15% larger than the prior crop and a record.

II. Coffee futures prices have mostly averaged below 2008 levels this year although recent commodity market inflation has spilled over into the coffee market.

What to Monitor I. Despite the record harvest, available 2008/09 world coffee stocks as a percent of use are

estimated to be historically small. II. Coffee output is a 2 year cycle, down one year and then up the next. 2008/09 crop was

an expansion year while 2009/10 will be a down year. III. Thus, available world coffee stocks could become historically short later next year. IV. A depreciating US dollar would discourage coffee imports in the US and also heighten

the costs of production for international coffee farmers.

The Outlook

I. We will experience historically tight coffee supplies during the next few years which will likely inflate the coffee markets. Challenged world economies could impact consumption as well. Thus, we are now forecasting the coffee market to average 5-10% below 2008 this year.


June 16, 2009


9

Beef The Current Situation

I. As of June 5th, the USDA choice boxed beef cutout was 9.8% less than last year and 7.6% less than the 3 year average for the date.

II. Retail beef prices have softened some in recent months but still remain well above year ago levels.

III. Beef production during April was 5.4% less than last year but 4% more than the prior 5 year average for the month.

IV. Both beef (9%) and dairy (2%) cow slaughter were lower during April compared to the

prior year. V. The percentages of cattle grading choice have trended notably above a year ago

throughout the spring. The percentage of cattle grading prime has trended above year ago levels as well as of late.

VI. Beef exports continued to improve but remain well below pre December 2003 US BSE (mad cow disease) discovery levels. The opening of beef exports to South Korea has added support to particular beef markets including short plates.

VII. Feed prices remain inflated. Cow/calf producer margins remain historically poor. VIII. The US economy is being challenged. Beef prices are retreating in response due to

demand concerns.


June 16, 2009


10

Beef…what to monitor What to Monitor

I. The January 1st US cattle and calf herd was 2% less than last year. It is likely the July 1, 2009 US cattle and calf inventory will be notably lower than 2008 as well. This is due in a large part to the rise in feed prices.

II. The world cattle herd is reported to be declining due to poor margins for producers, bullish for US beef exports. However, a tightening world economy and rising US dollar could damper growth some in 2009. The USDA is forecasting 2009 US beef exports to decline 7% from the prior year. Heavy exported US beef items include; short plates, skirts, chucks and briskets.

III. Corn, the chief feed ingredient for cattle, remains historically expensive. IV. Tighter dairy farmer margins are expected to persist which should cause producers to

send more cows for slaughter instead of retaining them for milk output. However, beef cow slaughter could wane compared to the prior year as 2009 progresses. Currently, we have 2009 cow slaughter forecasted to decline 4.4% but still be the 2nd largest since 2003.

V. The US dollar was historically deflated throughout most of 2008 and then signifiantly

rebounded in the fall. As of late, the US dollar has depreciated which is bearish for beef imports which consists of a large volume of 90% beef trimmings.


June 16, 2009


11

Beef…what to monitor continued

VI. The long term trend is a waning percentage of cattle grading prime and choice. That being said we have seen a remarkable improvement in the percentage of cattle grading choice this year. This is likely to persist.

VII. Beef production in 2009 is forecasted at 26.5 billion pounds which would be .2% less than the current USDA estimate for 2008. The reduction in beef output in 2009 will likely occur due to the decline in the cattle herd and tempered weight growth. But, strong percentages of cattle grading choice and prime are expected to cause prime and choice beef production to trend above 2008 levels this year.

VIII. Overall beef demand has shifted due to rising costs for consumers, especially gasoline,

and the relatively challenged economic environment. Retailers have featured less expensive beef cuts in recent months including grinds. Forward beef booking for deliver beyond 22 days has favored ground beef products. That being said, fairly engaging steak cut prices could lead to heavy feature activity later this summer.

IX. The economy and retail beef prices will be especially important to watch. Economic struggles will impact lower income families more so than others. However, a recession or slowed US personal income growth typically is bearish for beef prices in general. Existing alternative protein supplies especially pork and chicken are expected to decline next year as well which could be bullish for US beef. Additionally, the ongoing recession will impact food service traffic where a lot of beef is sold.


June 16, 2009


12

Beef…what to monitor continued

X. The choice boxed beef cutout index traded in a fairly consistent trading range for most of 2006 and 2007 with resistance at $155 and support at $140. However, from a technical perspective, the choice cutout broke below than range earlier this year and has remained relatively depressed. First resistance for the boxed beef should be the old support at $140. Buyers may want to take advantage of depressed beef below $140.


June 16, 2009


13

Beef…the outlook Outlook

I. Beef production has mostly been trading below year ago levels but the large percentage of cattle grading choice and heavy carcass weights have tempered the beef output reduction impact. This factor and a struggling US economy are depressing beef prices and this could be the story going forward if the above issues persist. That being said, despite all above there may be times when attractive beef prices encourage notable feature activity which would bring periods of strong volatility to various markets. One group to watch could be the ground beef and trimming markets around the Fourth of July Holiday.

II. Demand for beef trimmings has been strong but less than initially anticipated. Additionally, the strong rise in the US dollar as caused beef imports to build. We import a large portion of our 90% beef trimmings. Thus, we have lowered our forecasts once again. Beef trimming prices are forecasted to average 3-8% below 2008 this year. If the dollar were to shift lower from here than it would be bullish for the beef trimming markets.

90% Beef Trim 06-08 Avg 2007 2008

Change from 2007 2009

Change from 2008

Qtr 1 1.394 1.377 1.41 2.4% 1.4 -0.7%Qtr 2 1.45 1.435 1.607 12.0% 1.446 -10.0%Qtr 3 1.497 1.405 1.787 27.2% 1.47 -17.7%Qtr 4 1.314 1.261 1.395 10.6% 1.425 2.2%Ann Jun 09 1.414 1.491 1.55 4.0% 1.435 -7.4%Ann Mar 09 1.491 1.55 4.0% 1.447 -6.7%Ann Dec 08 1.491 1.554 4.2% 1.532 -1.4%Ann Sep 08 1.491 1.616 8.4% 1.667 3.2%


June 16, 2009


14

Beef…the outlook continued III. Beef feature activity has leaned more toward end cuts. However, record carcass weights

and the high percentage of cattle grading choice as provided ample supplies for the current lethargic demand. We have lowered our forecasts accordingly. Beef end cut prices are forecasted to average 4-10% below 2008 this year.

167a Choice Knuckle

06-08 avg 2007 2008


Change from 2008

Qtr 1 1.87 1.913 1.825 -4.6% 1.782 -2.4%Qtr 2 1.705 1.723 1.867 8.4% 1.581 -15.3%Qtr 3 1.791 1.714 1.978 15.4% 1.705 -13.8%Qtr 4 1.823 1.788 1.928 7.8% 1.812 -6.0%Ann Jun 09 1.797 1.784 1.899 6.5% 1.72 -9.4%Ann Mar 09 1.797 1.784 1.899 6.5% 1.814 -4.5%Ann Dec 08 1.784 1.898 6.4% 1.885 -0.7%Ann Sep 08 1.784 1.913 7.2% 1.935 1.2%


June 16, 2009


15

Beef…the outlook continued III. Choice middle meat demand has been impacted by the economy greatly as consumers

trade down at food service and have limited their spend at retail outlets. Additionally, the percentage of cattle grading choice is trending well above previous years. These factors are behind our lowered forecasts below for beef middle meats averaged 2-8% below 2008 this year as an annual average.

180 Choice 0x1 Strip

06-08 avg 2007 2008


Change from 2008

Qtr 1 5.359 5.671 4.978 -12.2% 4.242 -14.8% Qtr 2 6.314 6.228 5.944 -4.6% 5.605 -5.7% Qtr 3 5.373 5.1 5.086 -0.3% 4.509 -11.3% Qtr 4 4.602 5.017 4.113 -18.00% 4.119 0.2% Ann Jun 09 5.412 5.504 5.03 -8.60% 4.619 -8.2% Ann Mar 09 5.504 5.03 -8.60% 4.657 -7.4% Ann Dec 08 5.504 5.027 -8.20% 4.885 -2.8% Ann Sep 08 5.504 5.218 -5.20% 5.468 4.8%


June 16, 2009


16

Beef…the outlook continued III. Prime middle meat demand is suffering due to the challenged economy and decreased

restaurant traffic. Thus, we expect prime middle meat prices to average 5-12% below 2008 levels this year and be historically depressed.

112a Prime Ribeye

06-08 avg 2007 2008


Change from 2008

Qtr 1 8.068 8.296 8.219 -1.0% 6.545 -20.4% Qtr 2 8.127 9.039 6.891 -23.8% 6.484 -5.9% Qtr 3 8.355 9.238 8.102 -12.3% 6.705 -17.2% Qtr 4 8.215 9.101 7.311 -19.7% 7.488 2.4% Ann Jun 09 8.191 8.919 7.631 -14.4% 6.806 -10.8% Ann Mar 09 8.919 7.631 -14.4% 6.966 -8.7% Ann Dec 08 8.919 7.638 -14.4% 7.521 -1.5% Ann Sep 08 8.919 7.886 -11.6% 8.11 2.8%


June 16, 2009


17

Pork The Current Situation

I. Pork prices have mostly trended below year ago levels this winter. As of June 19th the weekly pork cutout was 8.8% less than the 5 year average for the date.

II. Pork production in recent weeks has been trending at to modestly below 2008 levels. III. Pork exports during April were 18% less than last year. IV. US hog producer margins have been challenged throughout the past year due to record

high feed costs. Feed costs have appreciated as of late. Sow (female swine) slaughter remains moderate however.

V. Retail pork prices have declined in recent months but were still 1% higher than a year ago during April.

VI. The March 1 US hog and pig inventory was 2.7% less than last year. The March 1 US breeding herd inventory was 3.1% less than last year.

VII. The misnamed “swine flu” or H1N1 flu has caused US pork exports to slow dramatically. What to Monitor

I. Pork exports will be especially interesting to watch in the coming months. Due to a global economic slowdown and US dollar valuation uncertainty, US pork exports could suffer some in the coming months. 2009 pork exports are now forecasted to decline 10.4% compared to 2008.

II. A struggling US economy could be bullish for retail pork demand in the coming year. Since consumers eat more pork at home and people are more apt to eat pork at home than away from home, pork consumption will benefit.

III. Although feed prices have significantly appreciated recently. Hog producers should experience inflated feed costs during the next year.


June 16, 2009


18

Pork…what to monitor continued

IV. The December 1 US breeding herd was 190,000 head less than the previous year and was the smallest for the date since 2005. Some modest additional swine breeding herd contraction is anticipated in 2009. That being said, recent sow slaughter and sow prices suggest that the breeding herd reductions has stopped.

V. US pork production in 2009 is forecasted by the USDA to decline 2.6% or 601 million

pounds.


June 16, 2009


19

Pork…the outlook The Outlook

I. Overall pork and hog demand is soft due to the challenged world economy and the H1N1 flu. Thus, hog and pork prices have struggled. The export bans on US pork and struggling world economies is expected to cause the hog and many of the pork markets to trend below year ago levels through the summer.

Hog 2008 2009 Change from 2008 Qtr 1 0.378 0.409 8.2% Qtr 2 0.511 0.413 -19.2% Qtr 3 0.552 0.444 -19.6% Qtr 4 0.41 0.452 10.2% Ann 0.463 0.429 -7.3%

II. Due to the overall poor pork demand, pork belly prices are expected to average below

2008 levels through the summer but then climb above year ago levels this fall.

Pork Belly (14-16 lb.)

06-08 Avg 2007 2008


Change from 2008

Qtr 1 0.817 0.911 0.771 -15.4% 0.734 -4.8%Qtr 2 0.941 1.024 0.774 -24.4% 0.699 -9.7%Qtr 3 0.901 0.896 0.857 -4.4% 0.782 -12.7%Qtr 4 0.766 0.758 0.742 -1.5% 0.795 7.1%Ann Jun 09 0.846 0.898 0.786 -12.4% 0.772 -1.8%Ann Mar 09 0.898 0.786 -12.4% 0.836 6.4%Ann Dec 08 0.898 0.787 -12.4% 0.879 11.7%Ann Sep 08 0.898 0.763 -15.0% 0.898 17.7%


June 16, 2009


20

Pork…the outlook continued

III. Mexico is by far the largest customer for US hams and Mexican pork consumption has plummeted due to the H1N1 flu outbreak. Thus, ham exports are expected to remain soft which has caused us to lower our forecast for ham prices through the end of the year.

Ham (23-27 lb.)

06-08 avg 2007 2008


Change from 2008

Qtr 1 0.534 0.566 0.497 -12.2% 0.434 -12.7%Qtr 2 0.618 0.599 0.65 8.5% 0.474 -27.1%Qtr 3 0.732 0.62 0.835 34.7% 0.535 -36.0%Qtr 4 0.562 0.513 0.553 7.8% 0.451 -18.4%Ann Jun 08 0.611 0.574 0.629 9.6% 0.474 -24.6%Ann Mar 08 0.574 0.629 9.6% 0.57 -9.4%Ann Dec 08 0.574 0.63 9.8% 0.615 -2.4%Ann Sep 08 0.574 0.663 15.5% 0.67 1.1%


June 16, 2009


21

Pork…the outlook continued IV. We’ve adjusted our rib price forecasts lower as well due to the poor food service, retail

and export demand for pork in general. However sparerib prices could climb above year ago levels this fall.

Spare Rib 06-08 avg 2007 2008

Change from 2007 2009 Change from 2008

Qtr 1 1.311 1.271 1.212 -4.6% 1.126 -7.1%Qtr 2 1.421 1.478 1.269 -14.1% 1.167 -8.0%Qtr 3 1.197 1.222 1.109 -9.3% 1.037 -6.5%Qtr 4 1.143 1.153 1.009 -12.5% 1.167 15.7%Ann Jun 09 1.268 1.281 1.15 -10.2% 1.124 -2.3%Ann Mar 09 1.281 1.15 -10.2% 1.212 5.4%Ann Dec 08 1.281 1.15 -10.2% 1.34 16.5%Ann Sep 08 1.281 1.165 -9.1% 1.395 19.7%


June 16, 2009


22

Dairy The Current Situation

I. The cheese and butter markets continue to trend well below year ago levels as exports have waned.

II. Milk prices have plummeted in response to the decline in the cheese, butter and dry product markets.

III. Corn prices are elevated but below 2008 levels. Current alfalfa hay crop prices have come off their highs from last summer but remain historically inflated. Milk farmer profitability during the spring has been especially challenged.

IV. The US April milk cow inventory was estimated at 9.284 million head .3% smaller than last year and 49,000 head less than the November peak.

V. Milk per cow yield (average amount of milk each cow produces) growth during the last 4 months has been poor.

VI. March and April milk production were actually less than the corresponding months in 2008.

VII. Milk cow slaughter in recent weeks as picked up with the National Milk Producers Federation CWT subsidized herd retirement program.

What to Monitor I. Although feed costs have depreciated and should be less this year compared to 2008, they

are expected to remain historically inflated. The feed cost for milk producers is expected to 33% higher in 2009 than the average this decade. Historically inflated feed costs are expected to persist in 2010 as well.

II. The forecast for the 2009 annual average milk cow herd is 9.125 million head which if

realized would be 1.5% less than 2008.


June 16, 2009


23

Dairy…what to monitor continued

III. With the decline in the milk cow herd and just a .4% gain in milk per cow yields projected next year, 2009 milk output is forecasted at 187.5 billion pounds, 1.2% less marking the largest annual decline by volume in the last 18 years.

IV. World dairy prices and dairy exports. The Oceania region is experiencing a notable

increase in milk output this year. New Zealand is the largest dairy exporting country in the world. The EU has restarted export subsidies for dairy farmers to encourage trade. These factors and a rising US dollar have caused US dairy exports to suffer especially cheese and butter.


June 16, 2009


24

Dairy…the outlook The Outlook

I. Milk farmer profits have continued to suffer due mostly to a decline in dairy product exports. Milk output declines are expected to intensify as the year progresses and into 2010. This should be moderately bullish for the dairy product markets through the end of the year.

II. The cheese markets are forecasted to move upward as 2009 moves forward from here although the market is anticipated to remain well below year ago levels due to poor dairy product exports.

06-08 avg 2007 2008


Change from 2008

Qtr 1 1.488 1.345 1.886 40.2% 1.18 -37.4%Qtr 2 1.644 1.734 2.012 16.0% 1.171 -41.8%Qtr 3 1.682 1.933 1.856 -4.0% 1.297 -30.1%Qtr 4 1.722 1.944 1.703 -12.4% 1.488 -12.6%Ann Jun 09 1.62 1.692 1.864 10.2% 1.284 -31.1%Ann Mar 09 1.692 1.864 10.2% 1.456 -21.9%Ann Dec 08 1.692 1.878 11.0% 1.737 -7.5%Ann Sep 08 1.692 1.906 12.7% 1.946 2.1%


June 16, 2009


25

Dairy…the outlook continued

III. Roughly 10% of US butter production has relied on exports for demand in recent years. With the stronger US dollar, exports are expected to suffer or prices will need to get to levels to encourage exports. Butter prices are forecasted to average well below 2008 levels throughout most of 2009. That being said, the butter market lows are likely behind us.

06-08 Avg 2007 2008


Change from 2008

Qtr 1 1.249 1.252 1.258 0.5% 1.133 -20.5%Qtr 2 1.358 1.453 1.451 -0.1% 1.232 -15.1%Qtr 3 1.44 1.443 1.616 12.0% 1.303 -19.4%Qtr 4 1.382 1.328 1.534 15.5% 1.348 -12.1%Ann Jun 09 1.357 1.323 1.465 10.7% 1.254 -14.4%Ann Mar 09 1.357 1.323 1.465 10.7% 1.28 -12.6%Ann Dec 08 1.323 1.467 10.9% 1.382 -5.8%Ann Sep 08 1.323 1.492 12.8% 1.602 7.4%


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Chicken The Current Situation

I. Chicken breast prices have mostly averaged below year ago levels throughout the spring but have climbed above 2008 levels lately. Wing prices set new record highs this spring and remain elevated.

II. April US chicken exports were 9.4% less than last year including a 53% decline in trade with Russia. For the most part, chicken exports have been resilient despite the troubled world economy.

III. Feed costs have appreciated lately. As of June 11th, the corn market was 34% less than last year but soybean meal prices were 16% higher than 2008.

IV. In recent months chicken output has trended significantly below year ago levels as producers have cut production.

V. Domestic chicken demand has been average at best due in part to inflated retail prices. April retail chicken prices were 5.2% higher than last year and a record.

VI. Broiler eggs will hatch the forthcoming chicken supply for slaughter. Broiler egg sets (or how many are available for future chicken output) have been trending 6-8% below year ago levels during spring.

What to Monitor

I. Feed costs for producers are projected to be less this year but still remain historically inflated. Feed costs for chicken producers could set a new record in 2010.

II. Broiler egg sets will need to remain notably below year ago levels for the foreseeable

future in an effort to curb pending chicken output. That being said, if and when chicken producer margins return to more normal levels (mid 2010?) broiler egg sets should increase.


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Chicken…what to monitor continued III. Chicken production this year is forecasted to track below prior year levels as suppliers

attempt to curtail supplies and influence chicken prices higher. Chicken production in 2009 is forecasted at 35.2 billion pounds, 4.6% less than this year marking the first annual decline since 1975.

V. Chicken demand will be important to monitor especially from the export side. Domestic

demand should recover but export trade has a tendency to be erratic. Russia has recently announced that they will curb US chicken exports in the coming months. The US has had its fair share of challenges with Mexico as well. Finally, the dollar value trend for 2009 is especially ambiguous due to the recent financial market turmoil. The USDA is forecasting 2009 US chicken exports to decline 7.7% from 2008.

VI. The general trend with higher bird weights is expected to persist in 2009 although any increases could be tempered by rising feed prices and customer demand for smaller sized product. Smaller sized chicken breasts and wings will likely demand a premium.

VII. Avian flu. If avian flu were discovered in North America it would likely occur with migrating birds. That being said, if chickens in the US domestic poultry supply were to become infected, the disease would most likely be quarantined and wiped out fairly quickly. US export trade would be slowed which could put downward pressure on the chicken markets, especially leg quarters. It’s important to note; The US has dealt with other strains of avian flu in the past successfully. It’s important to reiterate, we understand it to be very unlikely the US domestic poultry supply will be infected with the H5N1 strain of avian flu or a human pandemic will occur.


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Chicken…the outlook The Outlook

I. Chicken production cutbacks are here to stay for a while. Further, beef and pork output is expected to trend below year ago levels next year. These factors are bullish for chicken prices, but smaller exports and struggling food service demand could temper pending chicken market appreciation.

II. Our chicken breast forecasts for 2009 have been lowered once again due in part to the economic challenges that have emerged. But we still expect significantly higher chicken breast prices compared to a year ago (12-20%) during the last 6 months of 2009.

Chick Breast 06-08 Avg 2007 2008


Change from 2008

Qtr 1 1.347 1.52 1.417 -6.8% 1.362 -3.9%Qtr 2 1.509 1.789 1.497 -16.3% 1.543 3.1%Qtr 3 1.562 1.768 1.451 -17.9% 1.628 12.2%Qtr 4 1.263 1.388 1.178 -15.1% 1.393 18.3%Ann Jun 09 1.420 1.616 1.386 -14.2% 1.482 6.9%Ann Mar 09 1.616 1.386 -14.2% 1.500 8.2%Ann Dec 08 1.616 1.387 -14.2% 1.634 17.8%Ann Sep 08 1.616 1.472 -8.9% 1.733 17.7%


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Chicken…the outlook continued

III. Chicken wing prices are expected to trend substantially above 2008 levels this year due to production cutbacks. Demand from food service has remained relatively resilient and we anticipate this trend to continue for the most part.

Chick Wing 06-08 Avg 2007 2008Change from 2007 2009

Change from 2008

Qtr 1 1.225 1.361 1.24 -8.9% 1.49 20.2%Qtr 2 1.059 1.356 0.924 -31.9% 1.523 64.8%Qtr 3 1.124 1.355 0.934 -31.1% 1.572 68.3%Qtr 4 1.123 1.216 1.12 -7.9% 1.578 40.9%Ann Jun 09 1.133 1.322 1.054 -20.3% 1.541 46.2%Ann Mar 09 1.133 1.322 1.054 -20.3% 1.436 36.2%Ann Dec 08 1.13 1.322 1.055 -20.2% 1.262 19.6%Ann Sep 08 1.13 1.322 1.045 -21.0% 1.173 12.3%


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Chicken…the outlook continued

IV. Despite slowed export trade with Russia, chicken exports have been fairly resilient due in part to a deviation with the US dollar. Thus, we have adjusted our chicken leg quarter forecasts higher.

Chick Leg 1/4

06-08 Avg 2007 2008


Change from 2008

Qtr 1 0.348 0.388 0.429 10.6% 0.345 -19.6% Qtr 2 0.397 0.462 0.475 2.8% 0.454 -4.4% Qtr 3 0.47 0.504 0.534 6.0% 0.568 6.4% Qtr 4 0.382 0.431 0.413 -4.2% 0.482 16.4% Ann 0.399 0.446 0.463 3.8% 0.462 -0.2% Ann Mar 09 0.446 0.463 3.8% 0.398 -14.0% Ann Dec 08 0.446 0.462 3.6% 0.369 -20.1% Ann Sep 08 0.446 0.481 7.9% 0.531 10.4%


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Shrimp The Current Situation

I. Shrimp prices for the most part have been trading below year ago levels this year due in a large part to slowed demand.

II. April US shrimp imports were 6.3% greater than last year. III. US Gulf of Mexico shrimp landings as of late have been trending above prior year levels

as the lower cost of fuel has encouraged fishing. What to monitor

I. The US dollar and imports. The US dollar was relatively deflated through the better part of 2008 causing major shrimp exporters’ profits to suffer. Thus, we experienced a slowdown in the growth of shrimp imports last year. With the recent world economic challenges, the direction of the value of the dollar for 2009 is uncertain. If the dollar eventually appreciates it could bring a modest boost to US shrimp imports. From a historical standpoint, relatively strong US shrimp imports are anticipated in 2009. Imports account for roughly 90% of the US shrimp supply.

II. US shrimp landings could rebound some in 2009 due to the decreased price of fuel. IV. US shrimp import tariffs appear to be losing support which could be bullish for US

shrimp imports in 2009 V. Shrimp demand is anticipated to suffer as the US experiences an economic slowdown.

More and more, consumer attention is being directed to “wild” caught shrimp as opposed to “farmed” which could lead to a consistent premium in the wild shrimp markets.

The Outlook I. With a modest boost in imports next year we expect shrimp prices to average very close

to modestly below 2008 levels.


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Salmon The Current Situation

I. Salmon prices have mostly averaged above 2008 levels this year. II. Salmon remains a staple on food service menus and in retail counters. III. Infectious Salmon Anemia disease is causing notable loss in Chilean salmon farms.

What to Monitor I. Imports and Chile. Chile continues to combat Infectious Salmon Anemia which has

shortened their production immensely. Chile is a major salmon exporter to the US. Estimates are that Chilean salmon output could be down 30 to 50% this year as compared to 2008.

II. The value of the US dollar especially compared to Europe, Canada and Chile. The valuation of the dollar going forward remains ambiguous due to the recent world economic turmoil. A rising US dollar is bullish for US salmon imports.

III. Demand. Salmon has quickly become a core product on menus and in the retail counter. Salmon demand, especially for farmed product, is expected to remain strong as farmed salmon provides a more consistent product with less price volatility. However, given the economic challenges, salmon demand could suffer some in 2009.

The Outlook I. Due to the decline in salmon production salmon prices are expected to average at to

modestly above (0-10%) 2008 levels this year.


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Tomato Products, Canned The Current Situation-

I. According to the California League of Food Processors, the March 1st US canned tomato inventory was 5.5% smaller than last year due to strong demand.

II. Canned tomato prices have firmed as of late due to expected rise in raw product and can costs with the upcoming crop.

What to Monitor I. Can price increases. Processors will be experiencing a significant increase in can costs

this year which will be passed on to buyers. II. Total supply for the 2008/09 season is projected at 16.7 million tons, the largest this

decade. III. A rising US dollar is bearish for US canned tomato product exports. This will be

important to monitor in 2009. IV. California farmers have appeared to negotiate a 17% increase in raw product prices to

processors due to water challenges. Raw product prices have risen roughly 35% to processors during the past 3 years and have driven canned tomato product prices higher.

V. The water shortage in California could impact yields for the 2009/10 crop VI. 2009/10 tomato for processing crop will likely be a record.

The Outlook

I. Supplies should be somewhat adequate during the next year but canned tomato prices are anticipated to continue to firm due to the rise in raw product and production costs. Canned tomato prices could average 5-15% above 2008 levels this year.

the 2009 food commodity outlook report - american restaurant

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