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Presenter: Dr. Glynn Tonsor, Kansas State UniversityModerator: 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
• 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…
CALF CROPU.S., Annual
30
35
40
45
50
55
1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Mil. Head
C-N-18A01/29/12
-1 Percent2011 = 35.3 Million Head
Livestock Marketing Information CenterData Source: USDA-NASS
JANUARY 1 FEEDER CATTLE SUPPLIESResidual, Outside Feedlots, U.S.
25
27
29
31
33
35
37
39
41
43
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Mil. Head
C-N-3001/29/12
Livestock Marketing Information CenterData Source: USDA-NASS
USDA NASS:
# 1,000+ Head Feedlots:
2007: 2,1602008: 2,170 2009: 2,1702010: 2,140
Under 1,000 Head Feedlots:
2007: 85,0002008: 80,0002009: 80,0002010: 75,000
HEIFERS HELD AS BEEF COW REPLACEMENTS
January 1, U.S.
4.0
4.5
5.0
5.5
6.0
6.5
7.0
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Mil. Head
+1.4 %
Livestock Marketing Information Center Data Source: USDA-NASS
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%)
200
250
300
350
400
450
500
550
600
650
700
$/br
ed co
w
Value of Production and Operating Cost by Region, 2008-2010
Do some regions have an economic advantage for expansion?
Operating Cost
Value of Production
BEEF COWS THAT CALVEDJANUARY 1, 2012(1000 Head)
Livestock Marketing Information CenterData Source: USDA-NASS
U.S. Total: 29883
01/27/12
RI 1
DE 4
NH 4
CT 5
6
MA 7
NJ 8
10
VT 10
MD 43
78
100
109
160
184185
195195
217
236
265
300330 331
360
365
435
452
469
486512
547
620
650
664
714
749
862
895
909
940
950
9951427
1456
1610
1728
1857
1884
43650 to 160160 to 435435 to 909909 to 4366
National Herd: - 3.1% (vs. 2011)
Smallest since 1962
-660
-288-53
-51
-40
-28
-21
-20
-19
-18
-18
-16
-11
-9
-9
-9
-8-5
-3
-3
-2
NJ -1-1
-1
RI 0
DE 0
0
0VT 0
0
0
CT 1
MD 1
NH 1MA 2
3
4
5
5
10
10
10
10
14
20
20
22
23
55112
-660 to -9-9 to 00 to 1010 to 113
CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2011 TO JANUARY 2012(1000 Head)
Livestock Marketing Information CenterData Source: USDA-NASSU.S. Total: -967
01/27/12
OK + TX = 98.1% of National Decline
CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2002 TO JANUARY 2012(1000 Head)
Livestock Marketing Information CenterData Source: USDA-NASS
-1115
-319
-259
-156
-120
-115
-113-111
-111
-97
-95
-91
-86
-71
-52
-50
-46
-40
-35
-35
-31
-31
-26
-23
-21
-20
-13
-9 -9
-2
CT -2NJ -1
-1
DE -1
RI 0
0
NH 0VT 0
0
1
MA 2
MD 2
10
15
15
20
24
30
40
47
-1200 to -71-71 to -13-13 to 11 to 48
U.S. Total: -3100
01/27/12
OK + TX = 46.2% of National Decline
National Herd: - 9.8% (vs. 2002)
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”…
QUARTERLY FORECASTS (LMIC:2/1/12)
% Chg. Average % Chg. Comm'l % Chg.Year Comm'l from Dressed from Beef fromQuarter Slaughter Year Ago Weight Year Ago Production Year Ago
2011I 8,317 1.87 770.9 0.72 6,411 2.61II 8,639 -0.47 759.2 0.66 6,559 0.19III 8,739 -0.14 771.0 -0.32 6,737 -0.46IV 8,397 -2.97 773.1 -0.76 6,492 -3.70
Year 34,092 -0.46 768.5 0.06 26,199 -0.402012
I 7,991 -3.92 778.5 0.99 6,221 -2.97II 8,237 -4.65 766.3 0.93 6,312 -3.77III 8,129 -6.98 785.5 1.88 6,385 -5.23IV 7,958 -5.23 785.9 1.66 6,254 -3.66
Year 32,315 -5.21 779.0 1.36 25,172 -3.922013
I 7,512 -5.99 787.9 1.21 5,919 -4.85II 7,820 -5.06 772.0 0.74 6,037 -4.36III 8,043 -1.06 794.2 1.12 6,388 0.05IV 7,719 -3.00 793.2 0.94 6,123 -2.09
Year 31,094 -3.78 786.9 1.02 24,467 -2.80
QUARTERLY FORECASTS (LMIC: 2/1/12)Live Sltr. % Chg. Feeder Steer Price
Year Steer Price from Southern PlainsQuarter 5-Mkt Avg Year Ago 7-800# 5-600#
2011I 110.12 23.11 129.06 150.07
II 112.79 17.08 132.03 148.61
III 114.05 19.47 135.93 141.69
IV 121.99 21.66 143.15 153.11
Year 114.74 20.29 135.04 148.37
2012I 122-124 11.70 144-147 157-162
II 125-128 12.16 145-149 158-164
III 122-126 8.72 146-152 157-165
IV 125-130 4.51 143-150 153-163
Year 123-127 8.94 144-150 156-164
2013I 127-133 5.69 140-149 156-168
II 129-136 4.74 144-154 159-172
III 125-133 4.03 146-157 156-170
IV 128-137 3.92 143-155 153-168
Year 129-133 4.80 144-153 158-168
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”
ESTIMATED AVERAGE COW CALF RETURNSReturns Over Cash Cost (Includes Pasture Rent), Annual
-100
-50
0
50
100
150
200
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
$ Per Cow
C-P-6612/28/11
Livestock Marketing Information CenterData Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC
As of: 2/6/12
KSU – Beef Replacement; Excel Spreadsheet Decision Tool(http://www.agmanager.info/livestock/budgets/production/default.asp)
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
1/18/12’
Salina, KS Auction:
Young, Bred Cows (Med-Lg 1-2, 3rd stage)
$1,400 to $1,600
Notable regional
variation…
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…
1991-2010 Average
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
“Buy-Sell” spreadsheet tool (http://www.agmanager.info/livestock/budgets/production/beef/cattlebuysell.swf)
“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 ReturnFeeding COG $100 = - $1.46/head Expected Return
Purchase $151.16 $153.16 $155.16 $157.16 $159.16 $161.16 $163.16Weight1
450 181.60 184.77 187.95 191.12 194.30 197.47 200.65500 173.22 176.09 178.96 181.84 184.71 187.58 190.45550 166.41 169.04 171.66 174.28 176.90 179.53 182.15600 160.78 163.20 165.61 168.03 170.45 172.86 175.28650 156.06 158.30 160.54 162.78 165.02 167.26 169.50700 152.05 154.14 156.23 158.32 160.41 162.50 164.59750 N/A N/A N/A N/A N/A N/A N/A
1Enter the minimum purchase weight you are willing to consider.
2Based on a feeding cost of gain of $90/cwt.
Selling Price
Breakeven Purchase Price2
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
CHOICE STEER PRICE vs BREAKEVENCattle Feeding, S. Plains, Monthly
75
85
95
105
115
125
135
145
2004 2005 2006 2007 2008 2009 2010 2011 2012
$ Per Cwt
SteerPrice
Breakeven
ProjectedBreakeven
Livestock Marketing Information CenterData Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC
C-P-2102/04/12
Latest Data: January 2012
NAIBER (2/6/12): 750 lb placed on 2/6, sold at 1,244 lbs on 7/6/12 = - $94/hd
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
U S BEEF EXPORTS TO MAJOR MARKETSCarcass Weight, Monthly
0
10
20
30
40
50
60
70
80
90
100
2003 2004 2005 2006 2007 2008 2009 2010 2011
Mil. Pounds
Japan
Canada
Mexico
SouthKorea
I-N-3501/17/12
Livestock Marketing Information CenterData Source: USDA-ERS & USDA-FAS
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….
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
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%)
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
QUESTIONS & ANSWERS
Sponsored by:
FOR MORE INFORMATION
Glynn Tonsor : [email protected]
Lisa Keefe: [email protected]
Webinar recording and PowerPoint presentation will be emailed to you within 48 hours. For more information:
www.meatingplace.com/webinars
