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FarmEcon LLCA source of information on global farming and food systems
Thomas E. Elam, PhDPresident
2012 Turkey and Protein Sector Outlook
Dr. Thomas E. ElamPresidentFarmEcon LLCJanuary 18, 2012 1
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
$5.50-7.00 corn, $300-400 soybean mealLimited feed suppliesRecord-high meat and poultry exports
Value, andVolume
Southwest drought, declining beef supplySlow, but positive, domestic demand growthAll squeezing U.S. meat and poultry availability, and thus strong prices
Overall Protein Market Drivers
2
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00
$0$50
$100$150$200$250$300$350$400$450
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Corn
, $/B
ushe
l, Ce
ntra
l IL
Soyb
ean
Mea
l, $/
Ton,
Cen
tral
IL
Soybean meal, Central Ill. July Meal FuturesCorn, Central Ill. July Corn Futures
Feed Cost Drivers: Corn and Soymeal(Futures prices current as of 1-26-2012)
3
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
0¢
5¢
10¢
15¢
20¢
25¢
30¢
0¢
10¢
20¢
30¢
40¢
50¢
60¢
1/1/
2001
7/1/
2001
1/1/
2002
7/1/
2002
1/1/
2003
7/1/
2003
1/1/
2004
7/1/
2004
1/1/
2005
7/1/
2005
1/1/
2006
7/1/
2006
1/1/
2007
7/1/
2007
1/1/
2008
7/1/
2008
1/1/
2009
7/1/
2009
1/1/
2010
7/1/
2010
1/1/
2011
7/1/
2011
Stan
dard
Dev
iatio
n
RTC
Cost
, Cen
ts/P
ound
RTC Feed Cost/Lb Gain 12 Month Trailing Standard Deviation
Translated to HigherFeed Costs AND Volatility
4
RFS 1
RFS 2
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Low U.S. grain stocksMediocre U.S. yieldsDeclining U.S. major crop acreageGrowing global demand
Increasing U.S. biofuels mandatesHigh crude oil and finished fuels pricesHot/dry southern hemisphere weather
Feed Cost Drivers
5
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
0
10
20
30
40
50
60
0
2
4
6
8
10
12
1/20
007/
2000
1/20
017/
2001
1/20
027/
2002
1/20
037/
2003
1/20
047/
2004
1/20
057/
2005
1/20
067/
2006
1/20
077/
2007
1/20
087/
2008
1/20
097/
2009
1/20
107/
2010
1/20
117/
2011
Hog
and
Ste
er/H
eife
r Co
rn P
rice
Ratio
s
Broi
ler/
Milk
/Tur
key F
eed
Ratio
s
Broiler-feed Milk-feed Turkey-feed Hog-corn Steer and heifer-corn
Protein wholesale prices relative to feed costs:A mixed bag of recent profitability trends
6
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkeys up 1-2%Pork up 2-3%, export-drivenBeef down 4-5% – drought-drivenMilk up 1-2% Broilers down 2-4% - 2011 financial lossesWholesale prices for all likely to increase
2012 Protein Production Outlook
7
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
0
50
100
150
200
250
Poun
ds/P
er C
apita TURKEY
BROILERS
PORK
BEEF
Per Capita Meat DisappearanceFirst 3 4 5 Year Decline on Record
8
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Continued tight feed supplies=Higher feed costs, lower availability=Need for higher product prices=Need to cut production
Perceived risks on feed costsRecord-high meat and poultry exports2008-2009 recession and lingering effects
Why?
9
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Feedgrains Ending Stocks/Use Ratio
10
0%2%4%6%8%
10%12%14%16%18%20%
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
163.1 148.0 157.8 140.9 136.7 127.7 120.9
30.131.2
30.127.9 27.8
27.4 27.3
12.115.9
21.325.9 29.8 33.7 33.1
0
50
100
150
200
250
2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/ 2011 2011/2012 Forecast
Mill
ion
Met
ric To
nsU.S. Total Feedgrains Feed/Residual Use
Plus Soybean Meal and Estimated DDGS Feed Use
Feedgrains Soybean Meal Estimated DDGS
U.S. Feeding, Major Ingredients
11
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Ethanol Use and Corn Prices
12
10%
15%
20%
25%
30%
35%
40%
45%
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
% U
sed
for
Etha
nol
$/Bu
shel
September 1 Crop Year
U.S. Average Farm Price, Corn, $/Bu. % Feedgrains Used for Fuel Ethanol
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Total Meat and Poultry Exports
13
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2005 2006 2007 2008 2009 2010 2011 2012 Fcst.
Mill
ion
Poun
ds E
xpor
ted
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2012 TURKEY OUTLOOK DETAILS
14
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2012 SummaryCurrent pricing and low ending stocks imply modest 2012 turkey industry production growth. However, growth will be muted by continued high feed costs, and the need to recover those costs in wholesale pricing.
15
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2012 Turkey Outlook Features 1/1/2012 cold storage near record low 2011 level Profitability supported by exports and pricing Production:
Q1 2012: very near 2011 Q2 2012: production +1% to +2% Q3/Q4 2012: production also +1% to +2%
Flat or lower bird numbers, higher weights Farbest adding 3 million birds, but not online until
2013 Exports expected to decline slightly Lower beef and broiler supply, higher prices Feed costs remain the major wild card 16
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2011 production & use = balanced inventories
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
000
Pou
nds
Whole Birds Other Turkey
17
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
FarmEcon Model: RTC Value Per Pound and Feed Costs
Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Prices are USDA/AMS. Does not include value-added products.
18
0¢
20¢
40¢
60¢
80¢
100¢
120¢
140¢
Ce
nts
/Po
un
d, R
TC
Ba
sis
Weighted Product Price Feed Cost Weighted Product Price - Feed Costs
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
U.S. Market RTC Turkey Consumption
4,6004,700
4,8004,900
5,0005,1005,200
5,3005,400
Mill
ion
Poun
ds
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
est
2012
F
19
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
U.S. Market RTC Turkey Consumption(Per Capita)
15.0
15.5
16.0
16.5
17.0
17.5
18.0
Pou
nds
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
est
2012
f
20
Profitable
Unprofitable
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
$0
$1
$2
$3
$4
$5
$6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ Bi
llion
Wholesale Value of Parts and Whole Birds Sets New Record
21
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Poult Placements, UB, Weekly,Point to Flat Q1 2012 Bird Numbers
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000
200920102011
22
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey Export TonnageRecord November Volume, 29% Annualized Gain Over 2009
23
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2006 2007 2008 2009 2010 Jan -Nov 2010
Jan -Nov 2011
000
Lbs.
South Asia
Other Europe
Oceania
European Union-27
Former Soviet Union-12
South America
Middle East
Southeast Asia
Sub-Saharan Africa
Central America
Caribbean
East Asia
North America
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey Export ValueRecord Annual Value, 49% Annualized Gain over 2009
24
-
100,000
200,000
300,000
400,000
500,000
600,000
2006 2007 2008 2009 2010 Jan -Nov 2010
Jan -Nov 2011
$Mill
ion
Sub-Saharan Africa
Southeast Asia
South Asia
South America
Other Europe
Oceania
North America
Middle East
FSU12
EU27
East Asia
Central America
Caribbean
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey Export Tonnage Shares by Product
25
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 Jan -Nov 2010
Jan -Nov 2011
Shar
e
PR-CKD, SMKD
PREPS, OTHER
COMNUTD MST
WHOLE, FR, CH
BREAST, FZN
PREPS, MISC
SAUSAGE, FRANKS
OFFALS, FZN
WHOLE, FZN
WINGS, FZN
MDT, FZN
LEGS W/BONE, FZN
OTHER
CUTS FR/CH
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey Export Value Shares by Product
26
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 Jan -Nov 2010
Jan -Nov 2011
Valu
e Sh
are
COMNUTD MST
PR-CKD, SMKD
PREPS, OTHER
OFFALS, FZN
WHOLE, FR, CH
BREAST, FZN
TRKY,WING,FZN
PREPS, MISC
SAUSAGE, FRANKS
WHOLE, FZN
LEGS W/BONE, FZN
MDT, FZN
OTHER
CTS FR/CH
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2012 Turkey Forecast Details(Production, Use and Stocks in Million Pounds)
27
2008 2009 2010 2011 est 2012 fcstPct.
Change
Beginning Stocks 261 397 262 192 206 7%Production 6,216 5,626 5,569 5,720 5,765 1%Total Supply 6,477 6,023 5,831 5,912 5,971 1%Exports 676 534 582 674 650 -4%U.S. Consumption 5,404 5,226 5,082 5,053 5,141 2% Per Capita (Lbs.) 17.7 17.0 16.4 16.2 16.3 1%Total Use 6,080 5,760 5,664 5,727 5,791 1%Ending Stocks 397 262 192 206 200 -3%
USDA Hen Price, $/lb. $0.878 $0.782 $0.902 $1.030 $1.060 3%USDA Tom Price, $/lb. $0.873 $0.783 $0.900 $1.031 $1.050 2%USDA Breast Meat, $/lb $1.660 $1.367 $2.142 $2.495 $2.400 -4%USDA Thighs, $/lb $1.010 $0.935 $1.217 $1.374 $1.400 2%USDA MST, $/lb $0.251 $0.326 $0.261 $0.290 $0.320 10%
Margin over Feed, ¢/lb 31.6¢ 30.1¢ 53.0¢ 49.0¢ 50.0¢ 2%
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
60¢
65¢
70¢
75¢
80¢
85¢
90¢
95¢
100¢
105¢
110¢
16.0 16.2 16.4 16.6 16.8 17.0 17.2 17.4 17.6 17.8
Wei
ghte
d Av
erag
e Pr
ice,
Cen
ts p
er P
ound
U.S. Consumption, Pounds Per Capita
20052006
2007
20082009
2010
2011
Excellent Wholesale Demand Growth
28
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Early 2012 Price Comparisons
29
2010 2011 2012UB Category 18-Jan 17-Jan 16-JanHens 0.77 0.91 1.03Tom Breast Meat 1.52 2.42 2.35Drums, Tom, Frzn 0.6 0.76 0.77Wings, Frzn 0.75 0.72 0.75Tenderloins, Frzn 2.03 2.22 2.03BSTM, Frzn 1.17 1.32 1.47
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2012 Feed Cost Outlook
30
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Acreage and weatherSouthern hemisphere nowU.S. spring plantings and summer growing season
USDA reports that have more “surprises”Grain and meat/poultry export demandEthanol mandate up 215 million bushels
Major Risk Factors for 2012
31
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Corn Price Model Forecast
32
Regression for Season Average Corn Price, Feedgrain Crops of 1990-2009
Variable Coefficient Standard Error t Stat Intercept 4.218 0.543 7.763 Stocks/Use Ratio -20.623 7.208 -2.861 Stocks/Use Ratio2 48.087 22.972 2.093 Ethanol Production, Over 4 Billion Gallons 0.199 0.0274 7.271 Ethanol Price, Omaha Blender, over $2/Gallon 1.778 0.589 3.018
2011/2012 Assumptions:Feedgrains Stocks/Use Ratio = 7.1%Ethanol Production = 13.7 Billion GallonsEthanol Price = $2.65 per Gallon
Predicted 2011/2012 average farm price received = $6.09 per bushel, and a new record-high
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Despite record high crop prices and
farm income our acreage is
declining.
33
Commodity 1990 20111990-2011
Change
Corn 66,953 83,936 16,983
Barley 7,529 2,239 (5,290)
Sorghum 9,089 4,432 (4,657)
Oats 5,948 939 (5,009)
Net Change, Feedgrains 2,027
Rapeseed/Canola 77 1,050 973
Soybeans 56,513 73,676 17,163
Sunflowerseed 1,851 1,473 (378)
Flaxseed 253 224 (29)
Peanuts 1,801 1,114 (687)
Wheat 69,103 45,705 (23,398)
Net Change, Oilseeds and Wheat (6,355)
Rye 376 242 (134)
Rice 2,822 2,624 (198)
Dry Edible Beans 2,086 1,124 (962)
Dry Edible Peas 159 350 191
Potatoes 1,359 1,073 (286)
Sugarbeets 1,378 1,208 (170)
Sugarcane 791 883 92
Tobacco 730 337 (393)
Hay 61,557 57,605 (3,952)
Total All Crops 290,374 280,234 (10,140)Total Corn + Soybeans 123,466 157,612 34,146 Total Food Crops 85,822 55,262 (30,560)
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
E10 market is saturatedRequires about 13 billion gallons of ethanolWe produced 14 billion gallons in 2011We exported 1 billion gallonsWhy not sell more E85?
Ethanol BTUs are priced at 50% over gasolineParity is equal cost per BTU
Corn priced higher than energy parityWhy? The RFS is set too high
Blend Wall or Corn Wall?
34
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Ethanol/Gasoline Cost/BTUEthanol Is Not An Affordable Fuel!
35
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
Jan-
82Ja
n-83
Jan-
84Ja
n-85
Jan-
86Ja
n-87
Jan-
88Ja
n-89
Jan-
90Ja
n-91
Jan-
92Ja
n-93
Jan-
94Ja
n-95
Jan-
96Ja
n-97
Jan-
98Ja
n-99
Jan-
00Ja
n-01
Jan-
02Ja
n-03
Jan-
04Ja
n-05
Jan-
06Ja
n-07
Jan-
08Ja
n-09
Jan-
10Ja
n-11
Etha
nol/
Gas
olin
e BT
U C
ost R
atio
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Typical E85 Price
36
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Equal Cost/Mile E85 Price
37
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Proud of the Product?
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Corn/Soymeal Outlook – 2012Cash corn prices remain at $5.50-$7.00, meal at $300-400, through March/April (basis Illinois cash markets)Upside risks on poor South America/Australia weatherU.S. acreage, weather and demand drive Jun-Dec prices2012 predicted corn acreage up, soybeans downEthanol production will decline slightly (no tax credits)Slightly less DDGS production, and ethanol use mandate = increased corn demand
Increasing ethanol and DDGS exportsEnergy prices are also critical to outlookHigh volatility in all feed ingredient prices likely
39
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Record 14.3 billion bushel cropMake it possible to price corn for:
E85 salesHigher feed useMore exports
Build stocksLikely season average farm price $3.35-$4.00How likely, and is it repeatable?
What Would 165 Bu. Corn Do?
40
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
12.6 billion bushel crop2012 crop = current use rateNo room to increase useHigher 2013 RFS crowds out feeding and exportsEthanol priced per gallon higher than gasolineLikely season average farm price $7-$8How likely? About the same chance as 165
What Would 145 Bu. Corn Do?
41
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Summary:Continued high, and volatile, feed costs$5+ corn & $300+ soybean meal=new normal until a bumper corn cropFeed cost volatility an ongoing issue
Four broiler company bankruptcies in 2011Increasing RFS, weather, and limited acreage are on a collision courseAnother 2008 spike in the next 3-5 years?
42
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
RFS reform for conventional ethanolFarm Bill reform to encourage acreageVigilance on the GIPSA/EPA/FDA fronts
What Needs to Happen?
43
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Questions?Comments?
44