A New Era in Animal Production ?
Challenges and Opportunities for the
South?
Presented by:
John C. McKissick
Saludia SC Cattlemen’s Association
May 6, 2008
Department of Agricultural and Applied Economics
and Center for Agribusiness & Economic
Development
www.caed.uga.edu
College of Agricultural
and Environmental Sciences
The University of Georgia
A New Era in Animal Production ?
Challenges and Opportunities for the
South?
The Players
The Future - It’s The Economy Stupid!
Slower Growth Increases Vulnerability
Percent change Gross Domestic Product (Chained 2000$)
Recession impact
to high-value food
product demand?
7
6
5
4
3
2
1
0
-1
-2
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
The Culprit
Housing Sector Major Drag Into 2008
Million starts per quarter, seasonally adjusted
2.5
2.25
2
1.75
1.5
1.25
H o u s in g s ta r ts in
S e p t a t 1 .1 9 m il.!
1
0.75
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
Lower Interest Rates, Less Concern
With Deficits!
Fed Buys Insurance on Growth
Percent
9
1 0 -y e a r T r e a s u r ie s
8
7
6
5
4
F e d e ra l
F u n d s R a te
3
Jan.22,
2
Jan. 30
1
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
It’s Energy Stupid!
Ag as Energy Users and Suppliers
Crude Oil and Natural Gas Price
Dollars per barrel
Crude Oil Tripled,
Natural Gas
Quadrupled Since
2002
100
90
80
Dollars per MMBTU
16
14
12
70
60
WTI Crude Oil Price
50
(Left Scale)
10
8
40
6
30
Henry Hub Natural Gas Price
(Right Scale)
20
10
2000
2001
2002
2003
2004
2005
2006
2007
4
2
The Dollar – How Low Can You Go?
Dollar Correction Continuing in 2007-08
Indexes of major currencies/US$ adjusted for relative prices (Aug 2003=100)
110
100
90
80
70
60
80
82
84
86
88
90
92
94
96
98
00
* C u r r e n c ie s w e ig h te d b y r e la tiv e m a r k e t im p o r ta n c e to to ta l U .S . tr a d e .
02
04
06
08
Results - Higher Input Cost
WTI Oil Prices: Various Currencies
Ga Losers –
Fuel and Fert
Buyers
Dollars or Euros per barrel
C h a n g e N o v . 0 2 to
U .S . p ric e
+ 196
80 C h in a re n m im b i
+ 168
+ 108
70 E u ro
90
O c t. 0 7
% (trip le d )
%
% (d o u b le d )
i n U .S . d o l l a r s
60
50
40
in E u ro s
30
20
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
2005 2006
2007 2008
Results - More Competitive Exports
U.S. Ag Trade: Weaker Dollar Lifts Surplus
Billion dollars per fiscal year
80
Exports
Imports
Ga Winners –
Crops,
Livestock
Balance
70
60
50
Why
corn/beans
export up
with record
prices
40
30
20
10
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
U.S. Ethanol Production - Food Crops to Fuel
9000
Proj. 2008
8000
1 in every 4 acres of corn
to make this ethanol!
6000
5000
4000
3000
2000
1000
U.S. consumes about 144 Billion gallons of gasoline per year!
Ethanol production amounts to about 3.8% of gasoline use.
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0
1980
Million Gallons
7000
Current and Proposed Ethanol Plants
143 plants in production, 64 plants under construction/expansion
Source: Ethanolrfa.org
As of March 4, 2008
Existing Capacity 7.2 Bil. Gallons
Coming Capacity 5.2 Bil. Gallons
Source: Ethanolrfa.org
Midwest Ethanol Rack vs SE Wholesale Regular
Gas 2006 to Date
Midwest Ethanol
$4.00
SE Reg Gas
Fuel Value
Fuel Additive
$3.50
$3.00
$2.50
$2.00
$1.50
Fuel Commodity
$1.00
11
/4
/2
00
6
1/
4/
20
07
3/
4/
20
07
5/
4/
20
07
7/
4/
20
07
9/
4/
20
07
11
/4
/2
00
7
1/
4/
20
08
/2
00
6
9/
4
/2
00
6
7/
4
/2
00
6
5/
4
/2
00
6
3/
4
1/
4
/2
00
6
$0.50
Now Use More Corn for Ethanol
Than Export (25% Exports, 25%
Ethanol, 50% Feed)
CORN - MONTHLY AVERAGE PRICE
Received by Farmers, U.S., Crop Year
$ Per Bu.
5.70
Avg.
01/0205/06
5.20
4.70
4.20
2006/07
3.70
3.20
2.70
2007/08
2.20
1.70
SEP
NOV
JAN
MAR
MAY
JUL
Energy Bill – 2007
Mandate Approach but .51/gal subsidy
Ethanol ($1.38/bu), $1 Biodiesel Remains
• 36 BG of Ethanol by 2022 (about 8 BG
now)
• 15 BG of Grain Ethanol by 2015. 8BG in
2008 up to 15 by 2015
• 100 mg of Cellulostic Ethanol in 2010. By
2022, 16 BG
• Biodiesel – 500 MG in 2009 up to 1 BG by
2012.
Other Ethanol Issues
• Imports of Ethanol taxed at .54/ Gal. Will
expire 1/1/09.
• Blenders Credit of .51/Gal. will expire
12/31/10.
• Energy Bill prohibits use of wood
feedstock from public lands OR naturally
re-generated forest
• Future Ethanol Prices???
Farm Bill & Federal Policy Implications
for Livestock Producers
• Additional spending on ethanol development.
– Implies continued higher feed cost for poultry and swine
producers. Lower prices for feeder cattle. UNLESS Subsidies
reduced (-.06/gal. likely in FB) or alternative ethanol supplies
(imports/cellulosic) supported (+.49/gal cell. E. and -.06/gal.
import tax likely in FB)
– Watch mandated ethanol levels in energy bills
• No further postponement in mandatory country of origin
labeling.
– Affects beef and swine producers.
• Increased “conservation” spending – EQUIP etc.
• Commodity programs payments (WTO) threatens “Free
Trade”???
• Labor and immigration bill
OTHER
• Pew Commission on Industrial Farm Animal
Production – Animal Welfare, Public Health,
Environment, Rural Prosperity
• Media Attention to Abuses of in
Harvesting/Processing of Animals
• Animal Rights Agenda etc.
A New Era in Animal Production ?
Challenges and Opportunities for the
South?
The Playing Field
Pork – Peddling Up Hill in 2008
Is It Good To Be The Other White
Meat???
RETAIL MEAT AND POULTRY PRICES
Real (1996 $, GDP Deflator), Annual
Cents Per Pound
450
400
350
Beef
Pork
Broilers
Turkey
300
250
200
150
100
50
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Pig Production Grows In Response to Profits
ANNUAL PIG CROP
U.S.
Mil. Head
115
110
105
100
95
90
85
80
75
1982
1985
1988
1991
Livestock Marketing Information Center
Data Source: USDA/NASS
1994
1997
2000
2003
2006
H-N-52
06/29/07
COMMERCIAL PORK PRODUCTION
Quarterly
Bil. Pounds
6.5
Up 2-3% per yr. to 2009
6.0
Avg.
2002/06
5.5
2007
5.0
2008
4.5
4.0
2009
JAN-MAR
APR-JUN
JUL-SEP
OCT-DEC
15 years of Growth to 2007
U S PORK EXPORTS
Carcass Weight, Annual
Bil. Pounds
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1984
1987
1990
1993
1996
1999
2002
2005
2008
I-N-05
08/31/07
NET SLAUGHTER HOG PRICES
National, Weighted Average Carcass Price, Weekly
$ Per cwt
80
Avg.
2002-06
75
70
2007
65
60
55
2008
2006 = $47.26
2007 = $47.00
2008 = $42.00
O
C
T
JU
L
AP
R
JA
N
50
H-P-24
09/18/07
2007 Breakout Year For Broilers?
BROILER PRICES
Georgia Dock 2.5-3 Lbs. Bird, Weekly
Cents Per Pound
83
81
Avg.
2002-06
79
77
75
2007
73
71
69
2008
67
T
O
C
L
JU
R
AP
JA
N
65
P-P-06
09/18/07
Demand Issues?
BROILER PRICE-QUANTITY RELATIONSHIP
Annual, Retail Weight, Deflated Retail Whole Bird Price
$ Per Pound
1.25
81
1.20
84
89
86
1.15
82
83
1.10
88
90
85
87
1.05
91
1.00
96
92 93
94
95
98
97
99
01
00
02
03 04
0.95
05
06
0.90
0.85
45
50
55
60
65
70
75
80
85
90
P-P-04
02/21/07
Bird Flu Fallout?
BROILER PRICE-QUANTITY RELATIONSHIP
Annual, Retail Weight, Deflated Retail Composite Price
$ Per Pound
1.82
90
1.72
91
92
1.62
93
9496
95
9798
99
00
01
1.52
04
02
03
05
1.42
06
1.32
58
63
68
73
78
83
88
P-P-04A
02/21/07
WHOLESALE CHICKEN BREAST PRICES
Skinless/Boneless, Northeast, Truckload, Weekly
Cents Per Pound
180
Avg.
2002-06
170
160
150
2007
140
130
2008
120
O
C
T
JU
L
AP
R
JA
N
110
P-P-02
09/18/07
WHOLESALE CHICKEN LEG PRICES
Northeast, Truckload, Weekly
Cents Per Pound
70
Avg.
2002-06
65
60
55
2007
50
45
2008
40
O
C
T
JU
L
AP
R
JA
N
35
P-P-03
09/18/07
BROILER EGGS SET
Weekly
Mil. Eggs
225
220
Avg.
2002-06
215
210
205
2007
200
195
2008
Livestock Marketing Information Center
Data Source: USDA/NASS
O
C
T
JU
L
AP
R
JA
N
190
P-S-11
09/20/07
RTC BROILER PRODUCTION
Quarterly
Bil. Pounds
9.5
9.0
Avg.
2002/06
8.5
2007
8.0
2008
7.5
2009
7.0
JAN-MAR
APR-JUN
JUL-SEP
2007 Down 1%
2008 UP, 09 DOWN
OCT-DEC
M-S-30
08/31/07
Broiler Exports Grow - But US Now #2
Exporter To Brazil
U S BROILER EXPORTS
RTC, Annual
Bil. Pounds
7
6
5
4
3
2
1
0
1984
1987
1990
1993
1996
1999
2002
2005
2008
BROILER PRICES
12-City Composite, Weekly
Cents Per Pound
85
Avg.
2002-06
80
75
2007
70
65
2008
2006 = $64.4
2007 = $76
2008 = $80
T
O
C
JU
L
AP
R
JA
N
60
P-P-01
09/18/07
MILK PRODUCTION
vs. MILK COW INVENTORY
Average Annual Inventory, U.S.
Mil. Head
11.5
Bil. Pounds
190
11.0
180
10.5
170
10.0
160
9.5
150
9.0
140
8.5
130
1982
1985
1988
1991
1994
1997
2000
2003
2006
2008 Milk Price Estimates
$25.00
$19.38/cwt (est. annual average)
$20.00
$ Per CWT
$17.90/cwt (est. annual average)
$15.00
$10.00
$5.00
Southeast/Lower Appalachian Uniform Price
U.S. All Milk Price
$0.00
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
THE BEEF CATTLE CYCLE
Increase in Cattle Inventory Means
Increased Beef Supplies 3 Years Later
4
3
2
1
0
-1
-2
-3
-4
-5
-6
1978
1981
1984
1987
1990
1993
1996
1999
2002
Percentage Change Yr. over Yr.
2005
2008
CALF PRICES AND CATTLE INVENTORY
Western Kansas 5-600 Lb. Steers, Annual
Mil. Head
140
$ Per Cwt.
135
130
120
120
105
110
90
100
75
90
60
80
45
70
30
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
Cattle
Inventory
Calf Price
COMMERCIAL BEEF PRODUCTION
Quarterly
Bil. Pounds
7.2
7.0
Avg.
2002/06
6.8
6.6
2007
6.4
6.2
2008
6.0
5.8
2009
5.6
JAN-MAR
APR-JUN
JUL-SEP
OCT-DEC
U S BEEF AND VEAL NET IMPORTS
Carcass Weight, Annual
Bil. Pounds
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1984
1987
1990
1993
1996
1999
2002
2005
2008
$/Cwt.
If Not For Improved Beef/Red Meat Demand,
Adjustments Would Be More Severe!
Beef Demand – Production vs. Price Received
9 5 .0 0
9 0 .0 0
05
8 5 .0 0
8 0 .0 0
7 5 .0 0
O ld D e m a n d
06 N ew D em and
03
04
2007
90
93
9192
01
7 0 .0 0
00
94
95 97
96
6 5 .0 0
99
02
98
6 0 .0 0
5 5 .0 0
22.00
23.00
2 4 .0 0
25.00
26.00
B e e f P ro d u c ti o n , M i l . P o u n d s
27.00
28.00
MED. & LRG. #1 & 2 STEER CALF PRICES
400-500 Pounds, Georgia, Weekly
$ Per Cwt.
125
Avg.
2002-06
120
115
2007
110
105
2008
O
C
T
JU
L
AP
R
JA
N
100
MED. & LRG. #1 & 2 FEEDER STEER PRICES
700-800 Pounds, Georgia, Weekly
$ Per Cwt.
105
Avg.
2002-06
100
95
2007
90
85
80
2008
O
C
T
JU
L
AP
R
JA
N
75
CHOICE STEER PRICE vs BREAKEVEN
Cattle Feeding, S. Plains, Monthly
$ Per Cwt
105
Steer
Price
95
85
Breakeven
75
65
Projected
Breakeven
55
2000
2001
2002
2003
2004
2005
2006
2007
2008
Future Price Support from Exports?
U S BEEF AND VEAL NET IMPORTS
As a Percentage of Production, Carcass Weight, Annual
Percent
14
12
10
8
6
4
2
0
1984
1987
1990
1993
1996
1999
2002
2005
2008
A New Era in Animal Production ?
Challenges and Opportunities for the
South?
The Outcome
A New Era in Animal Production ?
Challenges and Opportunities for
the South?
• Prices relatively high, profits relatively low
• Input price risk management as important as market
• Grass gains more valuable vs. grain gain – keep cattle
in South to heavier weights!
• Heifers once again more attractive stocker alternatives
• Low input forage production alternatives more
competitive, BUT remember is the cost per unit of
production that counts
• Larger discounts for surplus (i.e. Feeder Cattle),
premiums for deficit products (Milk, grain etc.)
• Input price risk management is as important as market
price risk management
• “Local” produced demand continues to increase!
• Natural (not organic)/Humane Treaded Animal
Production will become even more important to
consumers