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FarmEcon LLC
A source of information on global farming
and food systems
Thomas E. Elam, PhD
President
2014 Poultry & Feed Cost Outlook
Midwest Poultry Federation
Dr. Thomas E. Elam
President
FarmEcon LLC
March 18, 2014
1
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Disclaimer
Prices – feed ingredients and meats
 Cash,
not contract
 Current, not future
 USDA and Urner Barry national averages
Margins
 Based
on current feed and turkey markets
 Do not reflect contracts on feed or turkey
2
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Poultry Sector Drivers
 Record 2013 corn crop is very good news


Enables 2014 protein production growth
Reduces feed costs from 2013 record-high level
 But, soybean meal still expensive
 Strong overall export demand for animal proteins
 Declining beef production, higher prices
 Pork production threatened by PEDv
 Slow, but positive, domestic meat demand growth
 Cost relief, higher red meat prices, good
demand
3
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2013 Was a Game Changer
Record U.S. corn crop
2014 ethanol mandate likely to be reduced
Corn stocks rebuilding to over 1 billion bu.
South American crops got off to a good start
GDP growth appears to be accelerating
4
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Macroeconomic Outlook
 Some pickup in growth to 2.5-3.0%
 Continued labor market weakness





Official unemployment rate is highly misleading
Most “improvement” from dropouts
Over 8 million potential jobs gap since 2008
Implied unemployment rate is over 13%
Major reason for lack of inflation
 Still, per capita consumer spending well above 2008

Very important for food demand
5
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Actual vs. Potential Employment
155,000
8.8 missing potential employment
Implied unemployment rate is 13.5%
Millions
150,000
145,000
140,000
135,000
130,000
2008
2009
Actual Employment
2010
2011
2012
Flat Employment/Population Ratio
2013
6
Mar-80
Mar-81
Mar-82
Mar-83
Mar-84
Mar-85
Mar-86
Mar-87
Mar-88
Mar-89
Mar-90
Mar-91
Mar-92
Mar-93
Mar-94
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Percent Labor Force Participation
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Labor Force Participation Rate
68
67
66
65
64
63
62
61
60
7
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Weather, Obamacare, Other?
4,100
3,900
3,800
3,700
Feb-14
Sep-13
Apr-13
Nov-12
Jun-12
Jan-12
Aug-11
Mar-11
Oct-10
Dec-09
Jul-09
Feb-09
Sep-08
Apr-08
Nov-07
Jun-07
Jan-07
Aug-06
3,500
May-…
3,600
Mar-06
Billion Hours Worked
4,000
8
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Retail Meat/Poultry CPI & Corn Price 6 Months Earlier
$7.00
102
100
$5.00
98
96
$4.00
94
$3.00
92
Current RFS
90
$2.00
First RFS
Central IL Corn, Constant $
$6.00
$1.00
88
Deflated Retail Meat and Poultry Price Index
7/2013
1/2013
7/2012
1/2012
7/2011
1/2011
7/2010
1/2010
7/2009
1/2009
7/2008
1/2008
7/2007
1/2007
7/2006
1/2006
7/2005
1/2005
$0.00
7/2004
86
1/2004
Deflated Meat and Poultry CPI
104
Central IL Corn Price, Constant $, 6 Months Earlier 9
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
$40,000
230
$35,000
220
$30,000
210
$25,000
200
$20,000
190
$15,000
180
$10,000
170
2007-2014 per cap consumption losses are cost driven
Total loss of 35 billion pounds, $155 billion retail value
160
$5,000
$0
Real Total Consumption Spending/Person, $2009
240
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014f
Total Meat and Poultry/Person, Lbs. Retail Weight
Meat Consumption vs. Potential
Actual Total Per Capita Meat and Poultry Consumption (2013-14 USDA Projection)
Consumer Spending-Based Potential Total Meat and Poultry Consumption
Real Total Personal Consumption Spending/Person (2013-14 Projected)
10
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2007-2013 Bankruptcy & Consolidation
•
•
•
•
•
•
•
•
Bankruptcy
Pilgrims
Townsends
Allen
Vineland Kosher
Lady Forest
Cagle’s
Fosters
Zacky
•
•
•
•
•
•
•
•
•
•
Consolidation
Gold Kist>Pilgrims
Pilgrims>JBS
Pilgrims>Foster
Townsends>Peco
Keystone>Marfrig
Draper Valley>Coleman
Coleman>Perdue
Cagle’s>Koch
Park Farms>Case
O.K.>Bachoco
11
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2014 Protein Production Outlook
Turkeys flat to up 1%
Broilers up 2-3%
Pork down 2% to up 2% (PEDv-dependent)
Beef down 5+%
Eggs up 1-2%
Milk up 1-2%
Upward red meat wholesale price pressures
Some broiler, egg and dairy price weakness
12
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Million Pounds (RTC Poultry, Commercial Red Meat)
2014 Protein Production Outlook
100,000
90,000
2008 record still stands
6,206
5,626
5,615
5,762
5,889
5,775
5,700
36,906
35,510
36,911
37,201
36,643
37,362
38,286
26,261
25,965
26,304
26,195
25,996
25,760
24,623
23,347
22,996
22,437
22,758
23,270
23,237
23,337
2008
2009
2010
2011
2012
2013p
2014f
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Pork
Beef
Broilers
Turkey
13
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feed Cost Drivers: Corn and Soymeal
$9.00
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
$500
$400
$300
$200
$100
$0
Soybean meal, Decatur/Central Ill. Truck
Meal Futures
Corn, Central Ill.
Corn Futures
14
Corn, $/Bushel, Central IL
$600
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Soybean Meal, $/Ton, Central IL
(Futures prices current as of 3-12-2014)
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Poultry Feed Cost
Cash Ingredient Prices for Standard Rations
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
RTC Turkey Feed Cost $/Lb
RTC Chicken Feed Cost $/Lb
Egg Feed Cost per Dozen (Large)
15
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
FarmEcon Standard Formulation Feed
Costs, July 2012 and December 2013
Cash Ingredient Prices+Basis for Standard Rations
Item
Broiler Feed Cost/Lb, RTC
Turkey Feed Cost/Lb RTC
Egg Feed Cost/ Doz.
Jul. 2012
$0.507
$0.629
$0.655
Dec. 2013
$0.366
$0.431
$0.469
Change
-27.8%
-31.5%
-28.3%
16
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
$12.0
$300
$10.0
$250
$8.0
$200
Monthly Difference
$6.0
$150
$4.0
$100
Cumulative Difference
$2.0
$50
$0.0
$0
17
$Million Monthly Difference From January, 2006
$Billion Cumulative Increase Since January, 2006
Turkey Feed Cost Increase from 2006
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Exports = Major Demand Growth
Total Meat and Poultry Exports
30,000
000 Metric Tons
25,000
20,000
15,000
10,000
5,000
0
18
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2014 Price Forecasts
Commodity
USDA Choice Beef Cutout, Cents/Lb
USDA Hog Cutout, Cents/Lb
USDA GA Dock Whole Broilers, Cents/Lb
UB Chicken BSBM, Cents/Lb
UB Chicken Leg Quarters, Cents/Lb
UB Turkey Tom Breast Meat, Cents/Lb
UB Turkey Thigh Meat, Cents/Lb
UB Frozen Hens 12 Lb, Cents/Lb
Eggs, Midwest, Grade A Large, Cents/Doz
2009 2010 2011 2012
141
58
86
135
39
146
95
80
95
157
81
86
151
38
220
122
92
100
181
94
87
129
47
251
137
103
109
191
85
94
141
52
207
123
106
112
2013 2014F
195
93
104
161
50
185
130
104
117
%
13/14
210
90
98
150
46
229
137
109
110
8%
-3%
-6%
-7%
-8%
24%
6%
5%
-6%
19
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2014 Broiler Production/Price Outlook
2.5-3.0% production increase
 Breeder
flock expansion takes 6-9 months
 Weakening prices have reduced incentives
 Existing breeder flock aged, productivity declining
Price outlook
 Broilers
always the first to expand
 3% more broilers = higher share
 Good exports demand forecast
20
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2014 Egg Production/Price Outlook
1.5-2.0% production increase
 Margins
have been excellent w/positive forecast
 Hen expansion is well underway
Price outlook
 Slow
but steady U.S. demand growth
 Record egg and products exports expected
On balance, prices weaker
21
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey Cost/Price Situation
 Lower production in last half 2013
 Good holiday sales
 Lower inventory
 Little indication of expansion
 Overall prices have strengthened
 Feed costs down since last Fall
 Limited whole bird post-holiday weakness
 Improved turkey producer cash margin above feed
cost
22
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Cents/Pound, RTC Basis
Lower Feed Cost + Improved Pricing =
Improved Margin Over Feed Cost
140¢
120¢
100¢
80¢
60¢
40¢
20¢
0¢
Weighted Product Price
Feed Cost
Weighted Product Price - Feed Costs
23
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Clear Signs of 2013 Financial Distress in Weekly
UB Poult Placement Data
6,500,000
2011
5,500,000
2012
2013
5,000,000
2014
4,500,000
4,000,000
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
3,500,000
Jan
Weekly Poults Placed
6,000,000
24
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2013 Ending Stocks Reflect Lower Production
and Improved Q4 Disappearance
000 Pounds
700,000
600,000
500,000
400,000
300,000
200,000
100,000
-
Whole Birds
Other Turkey
25
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
RTC Turkey Feed Cost
No Basis off Chicago Futures
July futures
Nov-Jan trading range
Nearby Meal
Futures
Nearby Corn Futures
$4.00
$4.20
$4.40
$4.60
$4.80
$5.00
$5.20
$5.40
$5.60
$5.80
$6.00
$340
$0.35
$0.36
$0.37
$0.38
$0.38
$0.39
$0.40
$0.40
$0.41
$0.42
$0.43
$360
$0.36
$0.37
$0.38
$0.38
$0.39
$0.40
$0.40
$0.41
$0.42
$0.43
$0.43
$380
$0.37
$0.38
$0.38
$0.39
$0.40
$0.41
$0.41
$0.42
$0.43
$0.43
$0.44
$400
$0.38
$0.38
$0.39
$0.40
$0.41
$0.41
$0.42
$0.43
$0.44
$0.44
$0.45
$420
$0.38
$0.39
$0.40
$0.41
$0.41
$0.42
$0.43
$0.44
$0.44
$0.45
$0.46
$440
$0.39
$0.40
$0.41
$0.41
$0.42
$0.43
$0.44
$0.44
$0.45
$0.46
$0.47
$460
$0.40
$0.41
$0.42
$0.42
$0.43
$0.44
$0.44
$0.45
$0.46
$0.47
$0.47
$480
$0.41
$0.42
$0.42
$0.43
$0.44
$0.44
$0.45
$0.46
$0.47
$0.47
$0.48
$500
$0.42
$0.42
$0.43
$0.44
$0.45
$0.45
$0.46
$0.47
$0.47
$0.48
$0.49
$520
$0.42
$0.43
$0.44
$0.45
$0.45
$0.46
$0.47
$0.48
$0.48
$0.49
$0.50
$540
$0.43
$0.44
$0.45
$0.45
$0.46
$0.47
$0.48
$0.48
$0.49
$0.50
$0.51
26
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey Feed Cost Forecast Summary
Item
Corn Price, Central Ill. ($/Bu.) + $0.60
Soybean Meal Price ($/ton , 47%) +$25
Meat and Bone Meal, Duluth/Ton +$20
Grease, Duluth/Ton +$20
Turkey feed cost (¢/lb, Live)
Turkey feed cost (¢/lb, RTC)
Lowest Turkey feed cost (¢/lb, RTC)
Highest Turkey feed cost (¢/lb, RTC)
Turkey feed cost (¢/lb, RTC) Range
2005
$2.50
$216
$197
$321
17.0¢
21.5¢
19.9¢
23.3¢
3.3¢
2010
$4.62
$337
$328
$581
28.8¢
36.4¢
32.6¢
45.6¢
13.1¢
2011
$7.30
$364
$371
$884
40.9¢
51.8¢
44.6¢
54.5¢
9.9¢
2012
$7.60
$461
$422
$777
43.0¢
54.5¢
47.0¢
62.9¢
15.9¢
2013
$6.58
$464
$432
$709
40.2¢
50.9¢
41.1¢
56.5¢
15.3¢
2014f
$5.50
$435
$375
$540
34.6¢
43.8¢
na
na
na
Depending on weather, July – December RTC range is 35 to 50+ cents
27
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2014 Turkey Forecast Details
(Production, Use and Stocks in Million Pounds)
Beginning Stocks
Production
Total Supply (Inc Imports)
Exports
U.S. Consumption
Per Capita (Lbs.)
Total Use
Ending Stocks
UB 12 Lb Hen Price, $/lb.
UB 16 lb Tom Price, $/lb.
UB Breast Meat, $/lb
UB Thigh Meat, $/lb
UB MST, $/lb
Margin over Feed, ¢/lb
2010
262
5,569
5,831
582
5,082
16.4
5,664
192
$0.923
$0.920
$2.195
$1.217
$0.280
60¢
2011
192
5,715
5,928
703
5,015
16.1
5,718
211
$1.043
$1.043
$2.505
$1.366
$0.304
60¢
2012
211
5,889
6,124
798
5,030
16.0
5,828
296
$1.096
$1.101
$2.067
$1.232
$0.353
43¢
2013 2014 Fcst
296
239
5,775
5,825
6,085
6,084
760
740
5,086
5,144
15.9
16.0
5,846
5,884
239
200
$1.042
$1.090
$1.036
$1.070
$1.850
$2.290
$1.298
$1.370
$0.380
$0.430
41¢
55¢
Pct.
Change
-19%
1%
0%
-3%
1%
1%
1%
-16%
5%
3%
24%
6%
13%
35%
28
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
U.S. Market RTC Turkey Consumption
Per Capita
18.0
Feed costs +
High stocks!
17.5
17.0
Pounds
16.5
16.0
15.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
15.0
2000
P
r
o
f
i
t
a
b
l
e
U
n
p
r
o
f
i
t
a
b
l
e
Profitable consumption/person has declined from 17.5 lbs to 16 lbs
29
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn Price Model Forecast
Regression for Season Average Corn Price and 1990-2011 Feedgrain Supply/Use Ratio
Variable
Intercept
Stocks/Use Ratio
Stocks/Use Ratio2
Ethanol Production, Over 4 Billion Gallons
Ethanol Price, Omaha Blender, over $2/Gallon
Coefficient
4.40
-22.9
54.7
0.21
1.64
Standard Error
0.61
7.99
25.52
0.029
0.58
t Stat
7.21
-2.87
2.15
7.16
2.83
Data sources: USDA, World Outlook Board, U.S. Department of Energy, and Nebraska Energy Board
2013/2014 Assumptions:
Feedgrains Stocks/Use Ratio = 12.6%
Ethanol Production = 13 Billion Gallons
Ethanol Price = $2.20 per Gallon
Predicted 2013/2014 corn average farm price received = $4.57 per bushel, $2.41
under the prior crop year. Year ago forecast was $6.78, actual was $6.89.
30
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feedgrain Stocks and Corn Prices
$8.00
$7.00
2012
$6.50
2011
$6.00
$5.50
2013: Model fcst. with 13 billion
gallons ethanol production
and $2.20 ethanol price
2010
$5.00
$4.50
1990-2005
predicted
corn price
$4.00
$3.50
2007
$3.00
Year 2006-2013
crops were produced
2008
2009
2013: Model fcst. with no
ethanol production or price effects
2006
$2.50
$2.00
Stocks/Use Ratio, Total Feedgrains
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
8%
6%
$1.50
4%
Season Average Farm Price, Corn, $/Bushel
$7.50
31
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feedgrain Supply/Use Bounces Back
450
Total Feedgrain Production + Inventory
400
Ethanol Plant
Total Corn Use:
38% Ethanol
28% CO2 Waste
34% DDG
Million Metric Tons
350
300
250
200
150
Ethanol Production
100
Waste CO2 Production
50
DDG Production
Feedgrains After Ethanol Use
0
Beginning Inventory
Sept. 1 - Aug. 31 Marketing Year
32
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2014 Risks and Uncertainties
Unfolding Crimea/Ukraine/Russia conflict
Weaker growth in China and LDC economies
 Negative
for poultry export prospects
 Would slow U.S. demand growth
Summer weather and 2014/2015 feed costs
 If
2013 happens costs drop 10-20%
 If 2012 happens costs increase 35-40%
 5-7 million acre shift out of corn, most to beans
33