Pork Industry Economic Update

Transcription

1 Vita Plus Swine Summit March 2018 Pork Industry Economic Update Steve R. Meyer, Ph.D. Economist Kerns & Associates The legal stuff This publication is intended for informational purposes only and the opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options or securities. All opinions and information contained in this document constitute Risk Assessment and Management, Inc. s judgment as of the date of this document and are subject to change without notice. Risk Assessment and Management, Inc. and their respective directors and employees may effect or have effected a transaction for their own account in the investments referred to in the material contained herein before or after the material is published to any customer of Risk Assessment and Management, Inc. or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein. While the information contained herein was obtained from sources believed to be reliable, Risk Assessment and Management, Inc. accepts no liability whatsoever for any loss arising from any inaccuracy herein or from any use of this document or its contents. This document may not be reproduced, distributed or published in electronic, paper or other form for any purpose without the prior written consent of Risk Assessment and Management, Inc. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. For the customers of Risk Assessment and Management, Inc. this report is produced exclusively for our business and expert clients, it is not for general distribution and our services are not available to private clients. Past performance is not indicative of future results.

2 Jan: DJIA fell from 26,616 to 24, % Now down 2.3% from 25,295 on Jan 2 And remember... The Dow Jones Industrial Average has successfully predicted ELEVEN of the last THREE recessions. Dr. Robert Dieli No Spin Forecast

3 The stock market free-fall: Was it even technically, a correction? Wealth Effect is still a positive! S & P 500 Q4 Real GDP:+2.5%, yr/yr, and qtr/qtr

4 RPDI growth has been positive for 12 months Jan-Sept avg. was 0.33% but Nov +1.04%, Dec +1.42%, Jan +1.56% Job gains: Six months in 17 of 200k or more th straight year of over 2 mil. added to rolls, Feb 18 was +313k

5 Third longest recovery on record... Dieli s EAS: No recession thru October

6 U + 4.1%, attitudes remain VERY positive CCI was highest since 2000 in Feb, CSI Per cap availability/disappearance/consumption this year, in 18 Record high in 19?

7 Retail beef & pork prices are still very strong Value, willingness to pay, new habit? Deflated retail prices are still high vs. history Except for chicken; Beef is at disadvantage

8 Dec 3-species RPCE: +6.1% yr/yr, YTD got to -1.0%... January RPCE sharply lower than December but higher than 17 Pork RPCE performed better than others in Jan Up 2.5% yr/yr but still 3.1% lower vs. 5-yr. average

9 The U.S. dollar remains weak versus last year And remains well below long-run support All currencies except peso are stable to stronger

10 Main issue vs. competitors is the Euro helping! Jan was another good month for pork exports % yr/yr, 2017 total ended up at +7.5%

11 Jan: Mexico +0.3%, Korea +14%, Other +11%..... Ch/HK +14, Japan +11%; GRAINS & COSTS

12 It s a battle for acres with both near 90 million And beans are winning big at present...

13 Corn balance sheet has tightened recently USDA Joe Millions of Bushels 13/14 14/15 15/16 16/17 March 17/18 18/19 Area Planted Area Harvested Percent Harvested 92% 92% 92% 92% 92% 92% Yield Per Acre Beginning Stocks 821 1,232 1,731 1,737 2,293 2,127 Production 13,829 14,216 13,602 15,148 14,604 14,181 Imports Total Supply 14,686 15,479 15,401 16,942 16,947 16,343 Feed and Residual 5,040 5,280 5,114 5,467 5,550 5,475 Food, Seed and Industrial 6,493 6,601 6,648 6,889 7,045 7,050 Ethanol Usage 5,124 5,200 5,224 5,439 5,575 5,600 Total Domestic 11,534 11,881 11,763 12,356 12,595 12,525 Exports 1,920 1,867 1,901 2,293 2,225 2,000 Total Demand 13,454 13,748 13,664 14,649 14,820 14,525 Ending Stocks 1,232 1,731 1,737 2,293 2,127 1,818 Stocks to Usage 9.16% 12.59% 12.71% 15.65% 14.35% 12.52% Production-Usage Carry-Out Months of Supply Average Farm Price $4.46 $3.70 $3.61 $3.36 $3.15 $3.55 3/23/2018 What is going on with feed/residual? Livestock/poultry have learned how to use other feedstuffs 3/23/2018

14 Exports are off to a slow start catching up? Our previous thought had been Nearby futures at $3.50-$4.00 forever

15 A key factor: Position of The Fund big LONG! 3/23/2018 SB rally has pushed corn higher until last week 3/23/2018

16 USDA at 15.6 S/U Kerns at 12.5 => $4.10 3/23/2018 Big increase in bean acres especially with rally Millions of Acres USDA joe Millions of Bushels 13/14 14/15 15/16 16/17 March 17/18 18/19 Acres Planted Acres Harvested Percent Harvested 99% 99% 99% 99% 99% 99% Yield Per Harvested Acre Beginning Stocks Production 3,358 3,927 3,926 4,296 4,392 4,421 Imports Total Supply 3,570 4,052 4,140 4,515 4,718 5,001 Crushings 1,734 1,873 1,886 1,901 1,960 1,980 Exports 1,638 1,842 1,942 2,174 2,065 2,300 Seed Residual Total Demand 3,478 3,862 3,944 4,213 4,163 4,417 Ending Stocks Average Farm Price $13.00 $10.10 $8.95 $9.47 $9.00 $9.60 Stocks to Usage 2.65% 4.95% 4.99% 7.16% 13.33% 13.23% 3/23/2018

17 But the rally is overdone S/U of 13.3 = $9.00 SBs 3/23/2018 Soybean exports are behind schedule... Will S. American be short enough to keep them so?

18

19 Higher C & SBM futures have pushed 18 costs Higher but still near 16 & 17 levels

20 HOGS & PORK December Hogs & Pigs was about as expected...

21 Cold Storage report was the bullish factor Revisions to BH changed the growth pattern From 0.7% to 1.2% 16 to date Source: USDA NASS

22 We expect productivity growth to continue Record litter sizes in 18 genetics, mgmt, nutr Source: USDA NASS, forecasts by Kerns & Associates BH growth + Productivity gains = Continued steep gains for MH inventories Source: USDA NASS

23 Key question: Disease death losses? PRRS highest since but much like last 4 years PEDV breaks almost the same as past 3 yrs mil. sows in PRRS sample, 3.0 mil. in PEDV

24 Weaned pig prices: Supply or demand or both? Not much change to our slaughter forecasts...

25 FI slaughter was below our forecasts in Q But has been +~100k each of the past four weeks Weights do not support a pull ahead reason Yr/yr gain is due to 2017 prices, costs, space

26 FI prod n: fell short of forecasts by 2.5% in Q Expect growth of 2-3% in 1 st half, 4-5% in 2 nd Our price forecasts: Futures have come back to us December 2017 Hogs & Pigs -- Hog Price Forecasts ISU LMIC Kerns CME Ia-Mn Producer-Sold Neg'd Base National Wtd Avg. Base Price National Net Price, All Methods CME Lean Hog Futures/Index Year Q Q Q Q Year Q Q Q Q Year Green figures are revisions since the latest USDA Hogs and Pigs report. 3/16/18

27 New plants continue to ramp up... NEW AND COMING U.S PACKING CAPACITY Fall 2016 Fall 2017 Fall 2018 Fall 2019 Company Location Daily Hd Ann Hd Daily Hd Ann Hd Daily Hd Ann Hd Daily Hd Ann Hd MoonRidge Pork Pleasant Hope, MO 2, ,500 2, ,500 2, ,500 2, ,500 Prime Pork Windom, MN 5,100 1,300,500 5,100 1,300,500 5,100 1,300,500 Triumph-Seaboard Sioux City,IA 10,200 2,601,000 20,400 5,202,000 20,400 5,202,000 Clemens Food Group Coldwater, MI 12,000 3,060,000 12,000 3,060,000 12,000 3,060,000 Prestage Farms Wright County, IA - 10,000 2,550,000 Total 2, ,500 29,800 7,599,000 40,000 10,200,000 50,000 12,750,000 Head per week 12, , , ,192 Percent of Fall '15 capacity 0.5% 5.9% 8.0% 10.0% Percent of Fall '16 capacity 0.5% 6.0% 8.0% 10.0% Total Capacity/Day 454, ,435* 497, ,635 Source: EMI Analytics based on public announcements & company confirmations Plants that are open as of 7/26/17 7/26/2017 *Includes changes during 2017 at other plants. Windom, MN: Was at 5,100/day, now 4,100 T-SB: ~9,300/day have had challenges Clemens: ~7,500/day thru Easter, full-june Competition is impacting margins summer?

28 Pork inventories are larger than last year But well below 5-yr avg pending 3/22 report Bellies stocks were record large for October And were 2x year-ago level on December 31

29 Bellies stocks are MUCH better than a year ago... Key implication: no repeat of 17 summer bellies Added $18 from late April to July!

30 A NORMAL belly cycle will put cutout near $90... And we expect Q to pressure cutout in Q4 LH futures have fallen recently but deffereds Are still strong, avg next 12 mos = $72.98

31 Our model with prod-sold net price indicates & 18 will be 4 th & 2 nd best years in last 10! Risks to the forecasts the usual suspects Major export disruption - FMD, ASF, CSF small probability, HUGE impact Trade issues Trump, EU-Japan, US deals?

32 NAFTA trade is rather amazingly balanced... But Mexico imbalances are in political products

33 Negative ag balance is a recent development 65 Positive for grain/meat, negative for veg s/booze 66

34 China dwarfs NAFTA Risks to the forecasts the usual suspects Major export disruption - FMD, ASF, CSF small probability, HUGE impact Trade issues Trump, EU-Japan, US deals? LABOR Plants, farms, immigration policy Diseases UM data indicate Normal winter levels, talk says much more Feed costs 2 crop failures to match Demand: Will we see growth in 18? - Domestic: Prefs? Wages/incomes? - Exports: $US? Mexico? Trade issues? Pork prices if all plants are full in 19?

35 Price forecasts again if you need them... December 2017 Hogs & Pigs -- Hog Price Forecasts ISU LMIC Kerns CME Ia-Mn Producer-Sold Neg'd Base National Wtd Avg. Base Price National Net Price, All Methods CME Lean Hog Futures/Index Year Q Q Q Q Year Q Q Q Q Year Green figures are revisions since the latest USDA Hogs and Pigs report. 3/16/18