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Livestock Outlook and Economics

Livestock Outlook and Economics. Brenda L. Boetel University of Wisconsin – River Falls August 2008. Implications for livestock. Cost of production lower than one month ago Lower oil costs Softer commodity market Steadily improving crop conditions

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Livestock Outlook and Economics

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  1. Livestock Outlook and Economics Brenda L. Boetel University of Wisconsin – River Falls August 2008

  2. Implications for livestock • Cost of production lower than one month ago • Lower oil costs • Softer commodity market • Steadily improving crop conditions • Value of dollar increases has bearish tendencies for corn price • Also for beef prices

  3. Cattle Situation and Outlook

  4. Domestic beef demand has been relatively decent • Expect increase for labor day • Cutout value supported by higher chuck and round values relative to rib and loin values • Supports idea that demand for higher quality beef is softening

  5. Spread has increased since this spring • Determined by supply and demand for Choice and for Select meat • Demand for choice is down, supply is up

  6. What will happen to beef demand? • Beef is more affected than any other protein by the economic situation • Look for weaker domestic demand • International demand will depend on alternative protein production, value of the dollar, trade restrictions

  7. Exports have increased (Jan – June was up 31%) • Imports are down (Jan-June down 22%) • Per capita beef supplies likely be down 2% for 2008

  8. Record high fed cattle prices and more are expected • Slaughter price likely 3% above 2007 • Fed cattle producers will see red ink • Cow-calf will have worst year in a decade

  9. Smaller cattle supplies have supported calf and feeder cattle prices • Higher corn prices have depressed prices, particularly calf prices • Higher byproduct prices • Lower margins for packers

  10. COF declining • COF down 4% from August 2007 and 9% from July 2006

  11. Placements were 2% above July 2007, but 15% below July 2006

  12. Where are we headed? • Commercial slaughter is expected to be smaller than year ago in Q3 and Q4 • Placements of heavier weight feeder cattle will delay fed cattle marketings into early next year • Beef production is expected to be lower by 2.5% in Q4 • Have continued strong byproduct prices

  13. Cattle supplies are tight, but pork and poultry supplies are not • 2008 and 2009 will likely be record years • Fourth Quarter 2008 and First Quarter 2009 will be problematic

  14. Projections for 2008 • Choice Boxed Beef • Decline to around $150-$155 • Q3-Q4 may be as low as $140-$145 • Spring will rebound to early 2008 levels • Choice-Select Spread • More choice beef • Look for spread to remain narrow • May approach 0 in late fall/winter

  15. Projections • Live cattle (5 market) • Q3 2008 $97-99 • Q4 2008 $99-101 • Q1 2009 $94-98 • Q2 2009 $100-104 • Beef and cattle prices should remain fairly stable for remainder of year

  16. Longer Term Outlook • All cattle inventory slightly down from July 2007 • Beef cow numbers are down 1% from July 2007 • Domestic cow slaughter increased causing liquidation

  17. Heifers held for beef cow replacements down 2% • Beef cow numbers indicate where herd is going • Beef heifer retention is precursor • Both are down, indicates fewer beef calves for next two years • Number of heifers on feed was down 3% while steers down 5% from July 2007 • Reduced heifer retention • Likely see a decrease in January 2009 cow herd

  18. Summary and Implications • High fat cattle prices support higher feeder cattle prices • High corn/forage prices do NOT support high feeder cattle prices • With good rainfall, many cattle will be on wheat pastures this fall • Increase yearling price volatility • May be swings in fed cattle prices next summer • Economy and competing meat supplies will drive beef prices • Barring a total economic collapse, cattle prices will have to increase to encourage expansion • Smaller beef production in 2009 • Increased heifer slaughter • Decreased steer slaughter • Decreased cattle imports • Increased exports • Improving world economy means increased demand for beef and other proteins • Value of dollar • Producers can look for stable to increasing prices for next 2-3 years

  19. Things to watch for • Extent for foreign demand – especially Asia • U.S. imports • Feed grain and forage prices, particularly demand for corn for ethanol • Rate of U.S. beef cow slaughter

  20. Other Issues • Increasing demand for beef from alternative production systems • Natural • Organic • Grass-fed • Increasing demand for locally produced foods • Animal welfare • MCOOL/NAIS

  21. Hog Situation and Outlook

  22. Hog kill was up 7% in June 2007

  23. Weights are down from Jun 2006 (but only by 1 to 2 pounds)

  24. Pork production was up 7% from Jun 2006 • YTD pork production is up 10.3%

  25. What are reasons for higher supply? • U.S. sow herd growth of 1-2% for the past 11 quarters – until June H&P report • Breeding inventory down 1% from last year, down 1% from last quarter • Big sow slaughter surge in late June

  26. March-May pig crop was up 4% from 2007, up 9% from 2006 • Average pigs per litter June-August was 9.38 • Good results occurring with circovirus vaccine

  27. Year to date, feeder pig imports are up 14%

  28. Market hog imports have been below 2007 since April • Year to date imports are down 8% • Week comparison is down 51%

  29. Reasons for higher supplies • U.S. sow herd growth of 1-2% for the past 11 quarters – until June H&P report • Growth in litter size and dramatic rebound of litters per breeding animal • Higher imports of Canadian feeder pigs and market hogs – but this will end soon • Effective circovirus vaccines • Smaller death loss • Fewer light weight hogs • Better growth rates

  30. June Quarterly Hogs & Pigs Report

  31. Slaughter was going down in June • Will have much higher slaughter for the rest of the year

  32. June 2008 Commercial Slaughter Forecast

  33. Pork Demand • Excellent pork demand through April • May and June had decreases in pork demand • Retail prices increased (but did not keep pace w/inflation – real price fell) • Record exports - YTD up 60%, May up 98%

  34. Currently 2008 prices are higher than 2007 • May see seasonal top this week

  35. Very high cutout values • Packer margins are high (Highest gross margin since 1999)

  36. Price Forecasts

  37. Where are we headed? • Hog producers will see more losses for the remainder of the year What can producers do? • Watch corn and soybean market in order to move on lower prices • Try to minimize losses

  38. Sources • Graphs • LMIC – www.lmic.info • Data • USDA- NASS

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