FarmEcon LLC
A source of information on global farming
and food systems
Thomas E. Elam, PhD
President
2012 Turkey and
Protein Sector Outlook
Dr. Thomas E. Elam
President
FarmEcon LLC
January 18, 2012
1
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Overall Protein Market Drivers
$5.50-7.00 corn, $300-400 soybean meal
Limited feed supplies
Record-high meat and poultry exports
Value, and
Volume
Southwest drought, declining beef supply
Slow, but positive, domestic demand growth
All squeezing U.S. meat and poultry
availability, and thus strong prices
2
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
Corn, $/Bushel, Central IL
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
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
Soybean Meal, $/Ton, Central IL
(Futures prices current as of 1-26-2012)
Soybean meal, Central Ill.
Corn, Central Ill.
July Meal Futures
July Corn Futures
3
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Translated to Higher
Feed Costs AND Volatility
60¢
30¢
25¢
40¢
20¢
30¢
RFS 1
15¢
20¢
10¢
10¢
5¢
0¢
0¢
Standard Deviation
50¢
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
RTC Cost, Cents/Pound
RFS 2
RTC Feed Cost/Lb Gain
12 Month Trailing Standard Deviation
4
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feed Cost Drivers
Low U.S. grain stocks
Mediocre U.S. yields
Declining U.S. major crop acreage
Growing global demand
Increasing U.S. biofuels mandates
High crude oil and finished fuels prices
Hot/dry southern hemisphere weather
5
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
60
10
50
8
40
6
30
4
20
2
10
0
0
Broiler-feed
Milk-feed
Turkey-feed
Hog-corn
Hog and Steer/Heifer Corn Price Ratios
12
1/2000
7/2000
1/2001
7/2001
1/2002
7/2002
1/2003
7/2003
1/2004
7/2004
1/2005
7/2005
1/2006
7/2006
1/2007
7/2007
1/2008
7/2008
1/2009
7/2009
1/2010
7/2010
1/2011
7/2011
Broiler/Milk/Turkey Feed Ratios
Protein wholesale prices relative to feed costs:
A mixed bag of recent profitability trends
Steer and heifer-corn 6
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2012 Protein Production Outlook
Turkeys up 1-2%
Pork up 2-3%, export-driven
Beef down 4-5% – drought-driven
Milk up 1-2%
Broilers down 2-4% - 2011 financial losses
Wholesale prices for all likely to increase
7
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Per Capita Meat Disappearance
First 3 4 5 Year Decline on Record
250
Pounds/Per Capita
200
TURKEY
150
BROILERS
PORK
100
BEEF
50
0
8
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Why?
Continued tight feed supplies
=Higher feed costs, lower availability
=Need for higher product prices
=Need to cut production
Perceived risks on feed costs
Record-high meat and poultry exports
2008-2009 recession and lingering effects
9
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Feedgrains Ending Stocks/Use Ratio
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
10
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
U.S. Total Feedgrains Feed/Residual Use
Plus Soybean Meal and Estimated DDGS Feed Use
U.S. Feeding, Major Ingredients
250
Million Metric Tons
200
12.1
30.1
150
15.9
31.2
21.3
30.1
25.9
27.9
29.8
27.8
33.7
33.1
27.4
27.3
127.7
120.9
100
163.1
148.0
157.8
140.9
50
136.7
0
2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/ 2011 2011/2012
Forecast
Feedgrains
Soybean Meal
Estimated DDGS
11
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
$7.00
45%
$6.00
40%
$5.00
35%
$4.00
30%
$3.00
25%
$2.00
20%
$1.00
15%
$0.00
10%
% Used for Ethanol
$/Bushel
Ethanol Use and Corn Prices
September 1 Crop Year
U.S. Average Farm Price, Corn, $/Bu.
% Feedgrains Used for Fuel Ethanol
12
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Total Meat and Poultry Exports
18,000
Million Pounds Exported
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
2005
2006
2007
2008
2009
2010
2011
2012
Fcst. 13
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2012 TURKEY
OUTLOOK DETAILS
14
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2012 Summary
Current 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 LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
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 LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2011 production & use = balanced inventories
000 Pounds
700,000
600,000
500,000
400,000
300,000
200,000
100,000
-
Whole Birds
Other Turkey
17
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Cents/Pound, RTC Basis
FarmEcon Model: RTC Value Per Pound and Feed Costs
140¢
120¢
100¢
80¢
60¢
40¢
20¢
0¢
Weighted Product Price
Feed Cost
Weighted Product Price - 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
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
U.S. Market RTC Turkey Consumption
5,200
5,100
5,000
4,900
4,800
2012F
2011est
2010
2009
2008
2007
2006
2005
2004
2003
2002
4,600
2001
4,700
2000
Million Pounds
5,400
5,300
19
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
17.5
17.0
16.5
16.0
2012f
2011 est
2010
2009
2008
2007
2006
2005
2004
2003
2002
15.0
2001
15.5
2000
Pounds
P
r
o
f
i
t
a
b
l
e
U
n
p
r
o
f
i
t
a
b
l
e
20
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Wholesale Value of Parts and
Whole Birds Sets New Record
$6
$5
$ Billion
$4
$3
$2
$1
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
21
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Poult Placements, UB, Weekly,
Point to Flat Q1 2012 Bird Numbers
6,500,000
6,000,000
5,500,000
5,000,000
4,500,000
2009
2010
2011
4,000,000
5Ja
n
5Fe
5- b
M
ar
5A
pr
5M
ay
5Ju
n
5Ju
5- l
A
ug
5Se
p
5O
ct
5N
ov
5D
ec
3,500,000
22
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey Export Tonnage
Record November Volume, 29% Annualized Gain Over 2009
800,000
South Asia
700,000
Other Europe
000 Lbs.
Oceania
600,000
European Union-27
500,000
Former Soviet Union-12
South America
400,000
Middle East
Southeast Asia
300,000
Sub-Saharan Africa
200,000
Central America
Caribbean
100,000
East Asia
-
North America
2006 2007 2008 2009 2010
Jan - Jan Nov Nov
2010 2011
23
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey Export Value
Record Annual Value, 49% Annualized Gain over 2009
600,000
Sub-Saharan Africa
Southeast Asia
500,000
South Asia
South America
$Million
400,000
Other Europe
Oceania
300,000
North America
Middle East
200,000
FSU12
EU27
100,000
East Asia
Central America
-
Caribbean
2006 2007 2008 2009 2010
Jan - Jan Nov Nov
2010 2011
24
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey Export Tonnage Shares by Product
100%
PR-CKD, SMKD
90%
PREPS, OTHER
80%
COMNUTD MST
WHOLE, FR, CH
70%
BREAST, FZN
Share
60%
PREPS, MISC
50%
SAUSAGE, FRANKS
40%
OFFALS, FZN
30%
WHOLE, FZN
20%
WINGS, FZN
10%
MDT, FZN
LEGS W/BONE, FZN
0%
2006 2007 2008 2009 2010 Jan - Jan Nov Nov
2010 2011
OTHER
CUTS FR/CH
25
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Turkey Export Value Shares by Product
100%
COMNUTD MST
90%
PR-CKD, SMKD
PREPS, OTHER
80%
OFFALS, FZN
Value Share
70%
WHOLE, FR, CH
60%
BREAST, FZN
50%
TRKY,WING,FZN
40%
PREPS, MISC
30%
SAUSAGE, FRANKS
20%
WHOLE, FZN
LEGS W/BONE, FZN
10%
MDT, FZN
0%
2006
2007
2008
2009
2010
Jan Nov
2010
Jan Nov
2011
OTHER
CTS FR/CH
26
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2012 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
USDA Hen Price, $/lb.
USDA Tom Price, $/lb.
USDA Breast Meat, $/lb
USDA Thighs, $/lb
USDA MST, $/lb
Margin over Feed, ¢/lb
2008
261
6,216
6,477
676
5,404
17.7
6,080
397
$0.878
$0.873
$1.660
$1.010
$0.251
31.6¢
2009
397
5,626
6,023
534
5,226
17.0
5,760
262
$0.782
$0.783
$1.367
$0.935
$0.326
30.1¢
2010
262
5,569
5,831
582
5,082
16.4
5,664
192
$0.902
$0.900
$2.142
$1.217
$0.261
53.0¢
2011 est 2012 fcst
192
206
5,720
5,765
5,912
5,971
674
650
5,053
5,141
16.2
16.3
5,727
5,791
206
200
$1.030
$1.060
$1.031
$1.050
$2.495
$2.400
$1.374
$1.400
$0.290
$0.320
49.0¢
50.0¢
Pct.
Change
7%
1%
1%
-4%
2%
1%
1%
-3%
3%
2%
-4%
2%
10%
2%
27
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Excellent Wholesale Demand Growth
Weighted Average Price, Cents per Pound
110¢
105¢
2011
100¢
2010
95¢
2007
90¢
85¢
2006
2005
80¢
2008
75¢
2009
70¢
65¢
60¢
16.0
16.2
16.4
16.6
16.8
17.0
17.2
U.S. Consumption, Pounds Per Capita
17.4
17.6
17.8
28
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Early 2012 Price Comparisons
UB Category
Hens
Tom Breast Meat
Drums, Tom, Frzn
Wings, Frzn
Tenderloins, Frzn
BSTM, Frzn
2010
18-Jan
0.77
1.52
0.6
0.75
2.03
1.17
2011
17-Jan
0.91
2.42
0.76
0.72
2.22
1.32
2012
16-Jan
1.03
2.35
0.77
0.75
2.03
1.47
29
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
2012 Feed Cost Outlook
30
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Major Risk Factors for 2012
Acreage and weather
Southern hemisphere now
U.S. spring plantings and summer growing
season
USDA reports that have more “surprises”
Grain and meat/poultry export demand
Ethanol mandate up 215 million bushels
31
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, Feedgrain Crops of 1990-2009
Variable
Intercept
Stocks/Use Ratio
2
Stocks/Use Ratio
Ethanol Production, Over 4 Billion Gallons
Ethanol Price, Omaha Blender, over $2/Gallon
Coefficient
4.218
-20.623
48.087
0.199
1.778
Standard Error
0.543
7.208
22.972
0.0274
0.589
t Stat
7.763
-2.861
2.093
7.271
3.018
2011/2012 Assumptions:
Feedgrains Stocks/Use Ratio = 7.1%
Ethanol Production = 13.7 Billion Gallons
Ethanol Price = $2.65 per Gallon
Predicted 2011/2012 average farm price received = $6.09 per bushel, and a
new record-high
32
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Commodity
Despite
record high
crop prices
and farm
income our
acreage is
declining.
1990
2011
1990-2011
Change
Corn
Barley
Sorghum
Oats
Net Change, Feedgrains
66,953
7,529
9,089
5,948
83,936
2,239
4,432
939
16,983
(5,290)
(4,657)
(5,009)
2,027
Rapeseed/Canola
Soybeans
Sunflowerseed
Flaxseed
Peanuts
Wheat
Net Change, Oilseeds and Wheat
77
56,513
1,851
253
1,801
69,103
1,050
73,676
1,473
224
1,114
45,705
973
17,163
(378)
(29)
(687)
(23,398)
(6,355)
Rye
Rice
Dry Edible Beans
Dry Edible Peas
Potatoes
Sugarbeets
Sugarcane
Tobacco
Hay
376
2,822
2,086
159
1,359
1,378
791
730
61,557
242
2,624
1,124
350
1,073
1,208
883
337
57,605
(134)
(198)
(962)
191
(286)
(170)
92
(393)
(3,952)
290,374
123,466
85,822
280,234
157,612
55,262
(10,140)
34,146
33(30,560)
Total All Crops
Total Corn + Soybeans
Total Food Crops
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Blend Wall or Corn Wall?
E10 market is saturated
Requires about 13 billion gallons of ethanol
We produced 14 billion gallons in 2011
We exported 1 billion gallons
Why not sell more E85?
Ethanol BTUs are priced at 50% over gasoline
Parity is equal cost per BTU
Corn priced higher than energy parity
Why? The RFS is set too high
34
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Ethanol/Gasoline BTU Cost Ratio
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Ethanol/Gasoline Cost/BTU
Ethanol Is Not An Affordable Fuel!
500%
450%
400%
350%
300%
250%
200%
150%
100%
50%
0%
35
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Typical E85 Price
36
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Equal Cost/Mile E85 Price
37
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Proud of the Product?
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Corn/Soymeal Outlook – 2012
Cash 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 weather
U.S. acreage, weather and demand drive Jun-Dec prices
2012 predicted corn acreage up, soybeans down
Ethanol production will decline slightly (no tax credits)
Slightly less DDGS production, and ethanol use mandate =
increased corn demand
Increasing ethanol and DDGS exports
Energy prices are also critical to outlook
High volatility in all feed ingredient prices likely
39
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
What Would 165 Bu. Corn Do?
Record 14.3 billion bushel crop
Make it possible to price corn for:
E85 sales
Higher feed use
More exports
Build stocks
Likely season average farm price $3.35-$4.00
How likely, and is it repeatable?
40
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
What Would 145 Bu. Corn Do?
12.6 billion bushel crop
2012 crop = current use rate
No room to increase use
Higher 2013 RFS crowds out feeding and exports
Ethanol priced per gallon higher than gasoline
Likely season average farm price $7-$8
How likely? About the same chance as 165
41
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Summary:
Continued high, and volatile, feed costs
$5+ corn & $300+ soybean meal=new normal
until a bumper corn crop
Feed cost volatility an ongoing issue
Four broiler company bankruptcies in 2011
Increasing RFS, weather, and limited acreage
are on a collision course
Another 2008 spike in the next 3-5 years?
42
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
What Needs to Happen?
RFS reform for conventional ethanol
Farm Bill reform to encourage acreage
Vigilance on the GIPSA/EPA/FDA fronts
43
FarmEcon LLC
A source of information on global
farming and food systems
Thomas E. Elam, PhD
President
Questions?
Comments?
44