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Sponsored by:. Presenter: Dr. Glynn Tonsor, Kansas State University Moderator: Lisa M. Keefe, Editor, Meatingplace. WEBINAR OVERVIEW. USDA’s January Cattle Inventory Report Broad Economic Outlook for 2012 Status and Direction of MCOOL. USDA’s Jan. Cattle Inventory Report.

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  1. Sponsored by: Presenter: Dr. Glynn Tonsor, Kansas State University Moderator: Lisa M. Keefe, Editor, Meatingplace

  2. WEBINAR OVERVIEW • USDA’s January Cattle Inventory Report • Broad Economic Outlook for 2012 • Status and Direction of MCOOL

  3. USDA’s Jan. Cattle Inventory Report • Many expectations were confirmed: • Beef Cow Inv. smallest since 1962 (29.88 mil.) • Calf crop smallest since 1950 (35.31 mil.) • Feeder supplies down 3.9% (25.85 mil.) • Partial Surprise: • Heifers held back +1.4% • National vs. Regional Variation stories abound…

  4. Livestock Marketing Information Center Data Source: USDA-NASS

  5. USDA NASS: # 1,000+ Head Feedlots: 2007: 2,160 2008: 2,170 2009: 2,170 2010: 2,140 Under 1,000 Head Feedlots: 2007: 85,000 2008: 80,000 2009: 80,000 2010: 75,000 Livestock Marketing Information Center Data Source: USDA-NASS

  6. When will U.S. national herd “really” start to expand? -- by 2014??? -- who & where will expansion occur??? Largest Increases: NE: +55,000 (+18.3%) SD: +40,000 (+14.3%) CO:+35,000 (+29.2%) WY: +25,000 (+17.9%) IA: +20,000 (+16.7%) Largest Decreases: TX: -60,000 (-9.8%) OK: -55,000 (-15.5%) MO:-30,000 (-10.0%) AR: -21,000 (-15.4%) NM: -20,000 (-21.1%) Livestock Marketing Information Center Data Source: USDA-NASS

  7. Do some regions have an economic advantage for expansion? Operating Cost Value of Production

  8. BEEF COWS THAT CALVEDJANUARY 1, 2012(1000 Head) National Herd: - 3.1% (vs. 2011) Smallest since 1962 U.S. Total: 29883 Livestock Marketing Information Center Data Source: USDA-NASS

  9. CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2011 TO JANUARY 2012(1000 Head) OK + TX = 98.1% of National Decline Livestock Marketing Information Center Data Source: USDA-NASS U.S. Total: -967

  10. CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2002 TO JANUARY 2012(1000 Head) National Herd: - 9.8% (vs. 2002) OK + TX = 46.2% of National Decline U.S. Total: -3100 Livestock Marketing Information Center Data Source: USDA-NASS

  11. Overarching 2012 Economic Outlook • Tight Supplies • Excess Feedlot and Packer Capacity • Export and Domestic Demand Strength • Weather – Drought Recovery?; Dry Corn-Belt? • Uncertainty Abound • Overall, expect a volatile year with probable attractive opportunities for many operations/firms who can “stomach the new normal”…

  12. QUARTERLY FORECASTS (LMIC:2/1/12)

  13. QUARTERLY FORECASTS (LMIC: 2/1/12)

  14. 2012 Economic Outlook: Cow-Calf • Benefit from very tight supplies and possible expanded heifer retention… • What expected return is needed for expansion? • Returns over cash costs may set historic records • 2013 or 2014 may prove to be “peak return year”

  15. Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC

  16. As of: 2/6/12

  17. KSU – Beef Replacement; Excel Spreadsheet Decision Tool (http://www.agmanager.info/livestock/budgets/production/default.asp) 1/18/12’ Salina, KS Auction: Young, Bred Cows (Med-Lg 1-2, 3rd stage) $1,400 to $1,600 Notable regional variation… Scenario3: Future = 5% above FAPRI Adjusted (550 lbs calves @ $155 in 2012 to $159 in 2021) 6.5% interest/discount rate; 3% calf death loss

  18. 2012 Economic Outlook: Stockers • Continued sophistication of this segment • “cheap corn days” are unlikely to return • Expected margins have been squeezed by run on calves • Easiest segment to “start and stop” so “sitting tight” may be prudent at times… • Flexibility in what type/weight class is purchased appears important currently…

  19. “Buy-Sell” spreadsheet tool (http://www.agmanager.info/livestock/budgets/production/beef/cattlebuysell.swf) • 2/6/12 Salina, KS Situation: • BeefBasis.com forecasted price of 750 lb steer May 7, 2012 is $157.16/cwt • What is break-even purchase price of a 550 lb steer purchased on Feb. 7, 2012? • forecasted price is $171.68/cwt

  20. “Buy-Sell” spreadsheet tool (http://www.agmanager.info/livestock/budgets/production/beef/cattlebuysell.swf) Expected Return: +$5.20/head [2.0 *($174.28-$171.68)] Feeding COG $80 = +$11.86/head Expected Return Feeding COG $100 = - $1.46/head Expected Return

  21. 2012 Economic Outlook: Feedlots • Excess capacity and packer margin concerns will remain an issue • Growing relevance of premiums and diversity across operations • Probable losses for the year, but markets suggest potential improvement over 2011

  22. NAIBER (2/6/12): 750 lb placed on 2/6, sold at 1,244 lbs on 7/6/12 = -$94/hd Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC

  23. MCOOL Status and Direction • Implemented amongst controversy • 2% to 4% increase in demand needed to “justify” • Estimate omits WTO ruling and related responses • Dec. 2008 – Canada initiated WTO dispute settlement process • Nov. 2011 – WTO ruled largely in favor of complaint • Mar. 23, 2012 – extended deadline for U.S. response • Adopt or appeal the WTO panel reports

  24. Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS

  25. MCOOL WTO Nov. 2011 Ruling: Possible Responses/Retaliations • International response will not necessarily be “meat retaliations” • WTO ruling doesn’t force MCOOL to end; but can allow imposition of “sanctions of equal measure against the U.S.” • i.e., possible tariffs on U.S. pork exports to Mexico … • OR imposition of tariffs on non-ag products for political reasons… • Buzz around FTA with South Korea must be kept in mind • nothing happens in a silo….

  26. MCOOL – U.S. Consumer Views • Current USDA funded project; little ex post research • March/April 2011 national survey of 2,000 U.S. residents • Limited MCOOL awareness “Are grocery stores currently required by law to label the country of origin for fresh {beef/pork/poultry}products?” a) Yes [30% “correct”] b) No [11% “incorrect”] c) I don't know [59%] • Limited COOL use in purchasing decisions • 11% look at COOL “every time” of fresh {beef/pork/poultry} purchase; 28% look “sometimes”; 60% “never” look

  27. MCOOL – U.S. Consumer Views • March/April 2011 national survey of 2,000 U.S. residents • WTO ruling, U.S. response preferences: • Adjust or repeal MCOOL as law in the U.S. to bring the law into line with WTO's ruling.(48%) • Make matching economic conciliations to compensate Canada and/or Mexico for estimated damages, and keep the current MCOOL law in the U.S. in its current form. (37%) • Other (please describe:) (15%)

  28. MCOOL – Tonsor’s Current Take • Canada and others are being rather reasonable • WTO ruling was largely as expected • “Free market” can address this issue sufficiently • “Fighting WTO” (and by extension Canada et al.) is unwise

  29. QUESTIONS & ANSWERS • Sponsored by:

  30. FOR MORE INFORMATION Glynn Tonsor : gtt@agecon.ksu.edu Lisa Keefe: lkeefe@meatingplace.com Webinar recording and PowerPoint presentation will be emailed to you within 48 hours. For more information:www.meatingplace.com/webinars

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