Brian Roe

1
LivestockOutlook

• Brian Roe

2
Overview

• Hog Outlook
• Beef Outlook
• Emerging Livestock Industry Issues
• 2002 Ohio Dairy Survey Findings

3
Farrow-to-Finish Returns
-338
-310
4
Farrow-to-Finish Returns
-71
-338
-310
5
Farrow-to-Finish Returns
-71
188
-338
-310
6
Farrow-to-Finish Returns
-71
188
-338
140
-310
7
Long Run Profits?

• Annual Returns Above Cash Costs
• For a farrow to finish operator with
• 350 sows, 2 litters/year, 8.7 pigs weaned/litter
• 4 death loss post weaning
• 500 market hogs or 1,315 cwt sold per month
• 1998 to 2002 11,383/yr.

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Over 2 Hog Cycles
Annual Returns Above Cash Costs 1998 to 2002
11,383/yr. 1995 to 2002 42,749/yr.
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High Variability Rules
Annual Returns Above Cash Costs 1998 to 2002
11,383/yr 1995 to 2002 42,749/yr
1998 to 1999 -87,908/yr 2000 to 2001
134,071/yr 2002 -35,413/yr
Over last 3 years, a 1 change in Supply ? 10
change in price
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Daily Hog Slaughter
11
Daily Hog Slaughter
Year to Date 2.6
12
Canadian Feeder Pig Imports
Year to Date 25 (625,000 pigs)
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Slaughter-Price Relationship
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Demand Holds in 2nd Quarter
Price and Slaughter for 2nd Quarter of 1994-2002
Apr-June 2002
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and in the 3rd Quarter
Price and Slaughter for 3rd Quarter of 1994-2002
July-Sept 2002
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Weekly Sow Slaughter
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Sow Slaughter
Year to Date 5.5 (130,000 sows)
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Sow Inventory
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Sow Inventory
Nov. 1 -2.3 (138,000 sows and gilts) vs. year
ago
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Dec-Feb 02
Interpretation
NASS data on sows farrowing during Dec-Feb 02
quarter
Sows Farrowing 2.83 m (NASS)
NASS data on pigs per sow during the quarter
8.74 pigs/sow
Pig CropImports 26.2 m
Product of 2 numbers above yields the quarters
pig crop Imported pigs and hogs
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Dec-Feb 02
Interpretation
NASS data on sows farrowing during Dec-Feb 02
quarter
Sows Farrowing 2.83 m (NASS)
NASS data on pigs per sow during the quarter
8.74 pigs/sow
Pig CropImports 26.2 m
Product of 2 numbers above yields the quarters
pig crop Imported pigs and hogs
This number is the percent of the Dec-Feb pig
crop imports that is slaughtered during the
following Jul - Sep quarter
95.9 slaughter/pig crop
Comm.Slaughter 25.1 m
Number of animals slaughtered during Jul - Sep
quarter
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Interpretation
Dec-Feb 02
NASS data on sows farrowing during Dec-Feb 02
quarter
Sows Farrowing 2.83 m (NASS)
NASS data on pigs per sow during the quarter
8.74 pigs/sow
Product of 2 numbers above yields the quarters
pig crop Imported pigs and hogs
Pig CropImports 26.2 m
This number is the percent of the Dec-Feb pig
crop imports that is slaughtered during the
following Jul - Sep quarter
95.9 slaughter/pig crop
Number of animals slaughtered during Jul - Sep
quarter
Comm.Slaughter 25.1 m
Average price received per live cwt for animals
slaughtered Jul - Sep quarter
Jul - Sep 02 33.39
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Jun-Aug 02
Dec-Feb 03
Mar-May 02
Sep-Nov 02
Sows Farrowing 2.83 m (NASS)
Sows Farrowing 2.81 m (intent)
Sows Farrowing 2.93 m (NASS)
Sows Farrowing 2.82 m (intent)
8.87 pigs/sow
8.74 pigs/sow
8.85 pigs/sow
8.81 pigs/sow
Pig CropImports 26.6 m
Pig CropImports 25.9 m
Pig CropImports 27.3 m
Pig CropImports 26.3 m
92.9 slaughter/pig crop
94.9 slaughter/pig crop
89.9 slaughter/pig crop
97.9 slaughter/pig crop
Comm.Slaughter 24.8 m
Comm.Slaughter 24.6 m
Comm.Slaughter 26.8 m
Comm.Slaughter 23.7 m
Jan-Mar 03 36-39
Jul-Sep 03 37-41
Oct-Dec 02 29-33
Apr-Jun 03 40-43
Authors projection
10/02
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Price ProjectionsE. Corn Belt Live Equivalent
Structural Model Predictions
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Price ProjectionsE. Corn Belt Live Equivalent
Structural Model Predictions
Futures-based
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Projected Returns Finishers Dec 1 Nov 30 03

• Cash Strategy Only (no hedging or contracts)
• Feeder --Returns above all Cash Costs--
• Pig Cost Average 1 in 5 chance
• 37 2.58/cwt -3.75/cwt
• 42 0.50/cwt - 5.83
• 47 -1.58/cwt - 7.91
• There is a 1 in 5 chance that the returns above
  cash costs will drop below the number in this
  column

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Projected Quarterly Returns Finishers Dec 1
Nov 30 03

• Cash Strategy Only (no hedging or contracts)
• 35 feeder pig costs
• --Returns above all Cash Costs--
• Quarter Average 1 in 5 chance
• Dec-Feb -5.41/cwt - 8.24/cwt
• Mar-May 3.67 - 3.26
• Jun-Aug 6.19 - 2.89
• Sep-Nov -1.04 - 9.84
• There is a 1 in 5 chance that the returns above
  cash costs will drop below the number in this
  column

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Cash vs. Contract Prices Eastern Corn Belt
Producers
Std. Ave Dev. Min Max
Sales Negotiated 33.53 4.71 19.28
40.89 17 Hog Market Formula 34.01
3.98 21.44 40.37 62 Other
Agreement 37.57 1.98 32.88 40.69 20

Live weight ECB base price for Nov 2001 Oct
2002 of ECB sales made under this agreement
as of Oct 2002
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Cash vs. Contract Prices Eastern Corn Belt
Producers
Std. Ave Dev. Min Max
Sales Negotiated 33.53 4.71 19.28
40.89 17 Hog Market Formula 34.01
3.98 21.44 40.37 62 Other
Agreement 37.57 1.98 32.88 40.69 20

Live weight ECB base price for Nov 2001 Oct
2002 of ECB sales made under this agreement
as of Oct 2002
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Cash vs. Contract Prices Eastern Corn Belt
Producers
Std. Ave Dev. Min Max
Sales Negotiated 33.53 4.71 19.28
40.89 17 Hog Market Formula 34.01
3.98 21.44 40.37 62 Other
Agreement 37.57 1.98 32.88 40.69 20

Live weight ECB base price for Nov 2001 Oct
2002 of ECB sales made under this agreement
as of Oct 2002
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Projected Returns Finishers Dec. 1 Nov 30 03

• Window Contract with 38/cwt floor and 46/cwt
  ceiling
• Split Difference when ECB price live outside this
  window
• Feeder --Returns above all Cash Costs--
• Pig Cost Average 1 in 5 chance
• 37 2.68/cwt -1.55/cwt
• 42 0.60/cwt - 3.63
• 47 -1.48 - 5.71
• There is a 1 in 5 chance that the returns above
  cash costs will drop
• below the number in this column

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BEEFOUTLOOK
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July 1 Beef Cow Herd
Down 6.4 in Last 7 Years
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Drought Shuffle

• Pasture Poor Change Cows July1
• CO 81 - 7
• KS 62 - 6
• MT 59 - 6
• NE 78 - 3
• IA 34 2
• TX 26 2
• OK 16 3
• OH 43 Not Reported
• US 41 - 0.5

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7 States Cattle On Feed
Nationally 1.1 million fewer head than 2001
11/02
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Weights Relent
37
Beef ExportsJan - Aug
Total Exports so far in 02 11 by weight vs.
01 - 3 by value vs. 01
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Optimist

• All meats reducing supply
• Broiler egg sets down
• Hog and Cattle cycles both in production lows
• Last time this happened was 1958
• 100/cwt hogs, 112/cwt cattle inflation adjusted
• Beef Exports held strong despite Japan
• Higher feed prices will moderate weights

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Pessimist

• All sectors could easily ratchet up supply
• Broilers respond quickly
• Red meats via carcass weights
• Exports to Japan still sluggish
• Down 34 in value as of August
• Cold storage at record high
• Feeder cattle imports
• Canadian imports up due to drought
• Mexican imports will eventually resume

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IN-OH-MI Steer Price Forecasts
Based on Dec. 2 Futures Data and Historic Basis
DataUsing 3 yr. Average, High and Low Basis
Figures
41
Fdr Cattle Price Projections Kansas price minus
transport shrink
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Marketing 350 Calves
Ave. Daily Gain 2 lbs.
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Marketing 350 Calves
Ave. Daily Gain 2 lbs.
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Marketing 350 Calves
Feed/Gain ratio 7 2.45/bu. Corn 0.11/lb
meal No labor included
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Marketing 350 Calves
Feed/Gain ratio 7 2.45/bu. Corn 0.11/lb
meal No labor included
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Marketing 350 Calves
Feed/Gain ratio 7 2.45/bu. Corn 0.11/lb
meal No labor included
47
Marketing 450 Calves
Ave. Daily Gain 2 lbs.
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Marketing 450 Calves
Feed/Gain ratio 7 2.45/bu. Corn 0.11/lb
meal No labor included
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Livestock Sector Developing Issues

• County of Origin Labeling
• Voluntary Though 2004
• No documents in 2004
• Cant sell as Born in the USA
• May be relegated to processed meat market
• May lower animal value
• Get ready to comply
• Affidavit wont be enough

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Livestock Sector Developing Issues

• County of Origin Labeling
• National Council of Chain Restaurants/FMI
• Animal welfare initiatives begin
• Represent all fast food restaurants and major
  supermarket chains
• June 02, More space for gestating sows
• Potentially major redesign of facilities

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Livestock Sector Developing Issues

• County of Origin Labeling
• National Council of Chain Restaurants/FMI
• Animal welfare initiatives begin
• Florida Ballot Initiative to ban sow crates
• 489,000 signatures to get on ballot (5 of
  voters)
• More space for sows - Won 55 to 45
• More space for kids Won 52 to 48
• Small economic impact launching pad?

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Livestock Sector Developing Issues

• County of Origin Labeling
• National Council of Chain Restaurants/FMI
• Property Values Suits
• IA Select Farms lose 33 million suit for
  lowering neighbors property values will appeal
• 4 other suits in IA over past decade, all lt 100k
• Similar suits dismissed in Ohio

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Livestock Sector Developing Issues

• County of Origin Labeling
• No documents in 04 ? Sell as processed meat
• National Council of Chain Restaurants/FMI
• June 02, More space for gestating sows
• Property Values Suits
• IA Select Farms lose 33 million suit for
  lowering neighbors property values will appeal

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Ohio Dairy SurveyFindings

• 13 of corn and forage produced off site
• Most prevalent among large farms
• 3 of corn silage produced offsite
• 7 farms in NW alone buy 1.2 million/yr.

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Ohio Dairy SurveyFindings

• 12 of manure spread on others land
• Most prevalent in S and SW
• Most prevalent on smallest and largest farms
• 5 of heifers not raised by farmers
• 28 for farms with gt200 cows

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Ohio Dairy SurveyFindings

• New to Dairy Farming in last 5 yrs
• 20 of farms with gt200 cows
• 13 of farms with lt30 cows
• Plan to exit in next 5 yrs
• 11 of operators representing 19 of cows
• Most likely are farms lt 50 cows and in S and SW
• Plan to expand in next 5 yrs
• 28 of operators representing 30 of cows
• Most likely are farms with gt100 cows and in South

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Ohio Dairy SurveyFindings

• 13 of corn and forage produced off site
• 3 of corn silage produced offsite
• 7 farms in NW alone buy 1.2 million/yr.
• 12 of manure spread on others land
• 5 of heifers not raised by farmers
• 28 for farms with gt200 cows
• 11 of operators plan to exit in next 5 yrs
• Most likely are farms lt 50 cows in S and SW

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Questions ??
Brian Roe [phone] Roe.30_at_osu.edu