FarmEcon LLC
A source of information on global farming
and food systems
Thomas E. Elam, PhD
President
2008 Turkey Outlook:
Costs and Prices on a
Collision Course!
Dr. Thomas E. Elam
President
FarmEcon LLC
June 10, 2008
FarmEcon LLC
A source of information on global farming
and food systems
Thomas E. Elam, PhD
President
But, we can
win this war
for feed!
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Think of the
cooler space
you could save
if you could
breed this gene
into a turkey!
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2004-2007
Four Good Years in a Row!
100¢
¢ Per Pound
80¢
60¢
40¢
20¢
0¢
2002
2003
Wtg. Avg. Price
RTC Feed Costs
2004
2005
2006
2007
LW Feed Costs
Margin above RTC Feed
Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Does not include value-added products.
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Why the String of Profits?
Production growth in line with demand
U.S. demand increased
Export demand also growing, esp. 2005-2007
Low feed costs until late 2006
Excellent pricing in 2007, but…
Higher 2007 costs offset by higher prices
Net result – drop in 2007 margins despite
average higher prices received
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Clouds on the Horizon
Feed costs have moved to a new plateau
2008-2009 recession looming
Record-high total beef/pork supplies
Turkey and broiler production increasing
Brazil has targeted turkey exports
Bottom line – in the face of larger supplies
demand growth will not be as robust
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Annual Average Prices – Raw Data
250
Cents/Lb.
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 June
30 '08
UB Eastern Hens, Frozen, 12+
UB Thigh Meat, Fresh
UB Breast Meat, Tom, Fresh
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Annual Average Prices: Index
shows real strength in dark meat
160%
2000=100%
140%
120%
100%
80%
60%
2000
2001
2002
2003
UB Eastern Hens, Frozen, 12+
UB Thigh Meat, Fresh
2004
2005
2006
2007
UB Breast Meat, Tom, Fresh
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Exports - Major Source of Strength
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Exports Show China Growth
Million Lbs, RTC Weight
600,000
Other
Dominican Republic
S. Korea
Canada
Haiti
Panama
Taiwan
Hong Kong
Russia
China
Mexico
500,000
400,000
300,000
200,000
100,000
0
2001 2002 2003 2004 2005 2006 2007
Source: U.S. Census Exports
December 2007 estimated
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Value of the Export Market*
$400,000
$350,000
$300,000
$000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
2001
Source: U.S. Census Exports
December 2007 estimated
2002
2003
2004
2005
2006
2007
*At port of exit
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2008 U.S. and Overall Outlook
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2008 OUTLOOK
Bottom line: A deteriorating
balance of higher costs,
increasing production, and a more
difficult demand growth scenario.
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
*ex-processor, 30% whole birds, 70% cutout X Domestic Consumption
2008 f
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Prices & Consumption Up
1997
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
1996
$Million
Estimated Value of the U.S. Market*
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
U.S. Turkey Production 2000-2008
6,200
2% Increase?
Million Pounds
6,000
5,800
5,600
5,400
5,200
5,000
2000
2001
2002
2003
2004
2005
2006
2007
2008?
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2008 Turkey Forecast Details
(Production, Use and Stocks in Million Pounds)
Beginning Stocks
Production
Total Supply
Exports
U.S. Consumption
Per Capita (Lbs.)
Total Use
Ending Stocks
UB Hen Price, $/lb.
UB Tom Price, $/lb.
UB Breast Meat, $/lb
UB Thigh Meat, $/lb
UB MDT, $/lb
Margin over Feed, ¢
2004
2005
2006
354
5,383
5,737
442
5,022
17.0
5,449
288
$0.694
$0.679
$1.950
$0.880
$0.283
45.9¢
288
5,456
5,744
570
4,968
16.7
5,538
206
$0.722
$0.712
$2.088
$0.915
$0.272
55.3¢
206
5,634
5,840
546
5,076
16.9
5,622
218
$0.765
$0.765
$2.160
$0.850
$0.215
55.3¢
2007 2008Fcst.
218
5,914
6,132
554
5,318
17.6
5,871
261
$0.814
$0.814
$2.310
$0.960
$0.248
54.5¢
261
6,050
6,311
600
5,450
17.9
6,050
261
$0.920
$0.920
$1.950
$1.100
$0.250
35.2¢
Pct.
Change
20%
2%
3%
8%
2%
2%
3%
0%
13%
13%
-16%
15%
1%
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2008 – Higher Costs Hurting Margins
100¢
¢ Per Pound
80¢
60¢
40¢
20¢
0¢
2002 2003 2004 2005 2006 2007 2008
Wtg. Avg. Price
RTC Feed Costs
LW Feed Costs
Margin above RTC Feed
Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Does not include value-added products.
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2008 Outlook Summary
Demand growth will be more challenging
Slow economic growth
Large supplies of competing meats, esp. pork
Record high feed costs
U.S. turkey production growth 2-3%?
Exports look healthy, weak dollar helping
Prices likely need to fall to use more turkey
Margins will shrink, losses likely for most companies
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feed Cost Outlook
2008/2009
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
It’s not ALL Ethanol
Ending global grain stocks trending down from 2001
Economic growth adding to demand
Subsidized ethanol demand on top of robust food demand
Million Tons Ending
Stocks
600
500
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008f
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Ethanol Facts
Every 20 gallons tank of E10 (10% ethanol) uses about
enough corn to feed a 25 pound turkey or 7 five pound
broilers.
Universal use of E85 in the U.S. would consume almost
the entire global grain supply
Mandated 2008 U.S. ethanol production will use the same
amount of grain as produced by Australia and Indonesia
If all current and planned Iowa ethanol plants are
operating they will use more than the entire Iowa corn
supply
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn/Ethanol Plant Locations
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
It’s even hurting “them”!
Alternative Energy Sources Inc. Unable to
Raise Funds for Construction By Todd Neeley
DTN Staff Reporter
OMAHA (DTN) -- Kansas City-based ethanoldevelopment company Alternative Energy
Sources Inc. has decided to close its
business, according to a company filing
Wednesday with the U.S. Securities and
Exchange Commission.
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn Value to Ethanol Producers
Wholesale
Gasoline,
$/Gallon, NYC
$1.65
$1.80
$1.95
$2.10
$2.24
$2.39
$2.54
$2.69
$2.83
$2.98
$3.13
$3.28
$3.42
$3.72
Wholesale E10
Blend Price
equivalent,
same mileage
$1.60
$1.74
$1.88
$2.02
$2.17
$2.31
$2.45
$2.60
$2.74
$2.88
$3.02
$3.17
$3.31
$3.59
Value of Ethanol plant
ethanol, no
corn B/E, no
subsidy subsidy, $/Bu.
$1.09
$1.26
$1.19
$1.55
$1.29
$1.85
$1.38
$2.16
$1.48
$2.45
$1.58
$2.76
$1.68
$3.05
$1.77
$3.34
$1.87
$3.65
$1.97
$3.95
$2.07
$4.24
$2.16
$4.55
$2.26
$4.84
$2.46
$5.39
Ethanol plant
corn B/E, with
subsidy, $/Bu.
$2.81
$3.12
$3.45
$3.77
$4.08
$4.41
$4.72
$5.03
$5.35
$5.68
$5.99
$6.32
$6.63
$6.81
Average
Corn Price,
2003-2005
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
$2.19
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Mandated U.S. Ethanol Production
And Corn Required
14.0
5,000
12.0
4,000
10.0
3,000
8.0
6.0
2,000
4.0
1,000
2.0
Grain needed, m. Bu.
20
21
0.0
20
11
-
Ethanol Mandate, bg
Billion Gallons Ethanol
16.0
19
97
19
98
19
99
20
0
20 0
0
20 1
0
20 2
03
20
04
20
05
20
06
20
0
20 7
08
Million Bushels Corn
6,000
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2008/2009 Ethanol Effects
Increased 2007 corn acreage doubled soybean
meal prices
2008 battle for acres
Corn acres needed to increase
Soybean prices prevented that
Then came the floods
The real food vs. fuel battle is just starting
Increasing use of DDGS in U.S. feeds
Long term advantage for Latin American corn and
soybean producers
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn Outlook – 2007/2008/2009*
2006/2007
Planted Acres, Million
Harvested Acres, Million
Yield, Bu./Acre
Beginning Stocks, Mill. Bu.
Production, Mill. Bu.
Feed Use, Mill. Bu.
Exports, Mill. Bu.
Food, Seed, Industrial, Mill. Bu.
Fuel Ethanol, Mill. Bu.
Total Use, Mill. Bu.
Ending Stocks, Mill, Bu.
Average Farm Price, $/Bu.
* September 1 Crop Year
78.3
70.6
149.1
1,967
10,535
5,598
2,125
3,488
2,117
11,210
1,304
$3.04
Forecast
Forecast
2007/2008 2008/2009
93.6
86.1
151.1
1,304
13,074
6,100
2,450
4,360
3,000
12,910
1,433
$4.50
87.3
78.9
145.0
1,433
11,441
5,150
2,000
5,110
3,750
12,260
614
$6.50
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Soybean Outlook – 2007/2008*
2006/2007
Planted Acres, Million
Harvested Acres, Million
Yield, Bu./Acre
Beginning Stocks, Mill. Bu.
Production, Mill. Bu.
Crush Use, Mill. Bu.
Exports, Mill. Bu.
Seed
Residual
Total Use, Mill. Bu.
Ending Stocks, Mill, Bu.
Soymeal Average Price, $/Ton
Soybean Average Price, $/Bu.
* September 1 Crop Year
75.5
74.6
42.7
449
3,188
1,806
1,118
78
70
3,074
574
$205
$6.43
Forecast
Forecast
2007/2008 2008/2009
63.7
62.8
41.2
574
2,585
1,840
1,110
92
2
3,044
125
$340
$11.50
74.5
72.1
39.5
125
2,848
1,760
900
86
79
2,825
148
$390
$12.50
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feed Cost Outlook – 2008*
Corn Price, Central Ill. ($/Bu.)
Soybean Meal Price ($/ton , 47%)
Meat and Bone Meal, Diluth/Ton
Grease, Diluth/Ton
Turkey feed costs (¢/lb, Live)
Turkey feed costs (¢/lb, RTC)
2005
$1.90
$191
$177
$325
19¢
24¢
2006
$2.40
$177
$167
$282
19¢
25¢
2007
$3.50
$236
$235
$458
26¢
33¢
2008
$6.50
$375
$330
$700
41¢
52¢
*Add $0.50/bu. for corn and $20/ton for soybean transportation and handling
Based on 2.6:1 FCR, 70% corn, 17.5% SBM, 5% meat and bone meal, 5.5% grease, 2% “other” diet
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Summary:
2004-2005: improved profits = lower production
In 2006-2007 it all came together:
Excellent U.S. demand growth
Production issues that restrained 2006 supply
Higher turkey prices that offset higher feed costs
What will it take in 2008/2009?
Demand growth in a worsening economy
Lower red meat production
Changes in biofuels programs
Declining energy prices
Better weather in 2009
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
The bottom line is:
2002/2003 was actually worse
But most of the industry survived
Turkey producers can eventually pay
more for corn than ethanol producers
Because the turkey industry can shrink and
prices WILL go up
Ethanol producers are slaves to oil prices
Oil prices will eventually come down too