2002 Agricultural Policy

1
2002 Agricultural Policy Outlook

• Livestock

Brian Roe Department of Agricultural,
Environmental, and Development Economics
2
Overview

• Beef
• Hogs
• General Issues
• Questions

3
Beef

• Sunny Outlook of Early 2001 is
• Driven by cycle position, demand resurgence
• Dampened by short-run supply-side events
• Demand rocked by recent events causing a plunge
  in prices

4
(No Transcript)
5
Long-run supply outlook (cattle cycle) sets high
initial price level
6
Short-run supply issues e.g., clumped
placements, rising weights Price level erodes
slightly over summer
7
September 11 Market closes for a couple days
Moderate decline for next few days
8
Post-September 18 -Soft August retail price
s -Japan BSE scare flares -General worry
about future demand -
Implied volatility up 70-80
9
Retail Price Choice Sirloin
10
Retail Price Choice Sirloin
11
Retail Price Choice Sirloin
12
Retail Price Choice Sirloin
13
Retail Price Choice Sirloin
14
Retail Hamburger Prices
15
Retail Stew Meat Prices
16
Japan-BSE

• Consumes nearly half our exports
• Economy struggling, beef imports down some
• ID of
• One Japanese cow with BSE in mid-September
• Two more cows in late Nov and early Dec
• Japanese consumption plummets
• Loss represents about 2 of US production
• Compare to Europe
• 1 year later consumption still off 5-10

17
A rally begun, but repelled by Anthrax
scare No improvement in number of
marketings Glut of heavy cattle in Plains
18
Cash Costs and Returns Average Great Plains
Cattle Feedlot
Costs
-11.25
2001 est. ave. loss of at least 2.25/cwt
30/head
11/01
19
Should I retain/background

• Sell a 450 lb. today for 93.75/cwt 422
• In 150 days (May)
• Have a 7.5 cwt feeder
• Futures Price is 81.92
• Typical Basis is - 4.92
• Cash price - 2 death 4 int. 74.54 559
  
• Increased Revenue of .. 137
• Means back rounding
• Breakeven cost of 0.91/day
• 0.46/lb.
• Feed cost (corn,sbm, hay) is 0.35/lb.
• Is doing everything else worth . ..0.11/lb?

20
Returns from Backgrounding
Program 450 750 lbs, 150 days Returns above
feed costs in /lb.
21
Feeder Cattle Price Forecasts Based on Futures
Data and Kentucky Historic Basis Data Using 8 yr.
Average, High and Low Basis Figures
Based on December 10 futures prices
22
IN-OH-MI Steer Price Forecasts Based on Futures
Data and Historic Basis Data Using 4 yr. Average,
High and Low Basis Figures
Based on December 10 futures prices
23

• Hogs

24
Historical Cash Costs and Returns N. Central
Farrow-to-Finish 1,600 head annual sales
Costs
Since Jan-98 Deficits Recovered in March 2001
12/01
25
Hogs

• Expansion Temptation Resisted So Far?
• Once bitten, twice shy
• Regulatory hold ups and local opposition
• Demand Stable . so far
• Trade has been quite beneficial
• Fall slaughter run early, stirring supply fears

26
Yellow Proj. based on Sept. Hogs and Pigs
Reports Pink Actual Weekly Slaughter Blue
year previous
27
Breeding Herd Expansion

• United States as of Sept. 1, 2001
• 1 fewer sows kept for breeding (-88,000)
• Pigs/litter fairly constant
• Farrowing Intentions
• 1 Sep Nov 01
• 3 Dec 01 Feb 02
• Canada as of Oct. 1
• 4 more sows/gilts (53,000)

28
Imports Canadian Slaughter Hogs
12/01
29
Imports of Canadian Feeder Pigs
12/01
30
Why Canadian Feeder Pigs?

• Study George Morris Center in Ontario
• West. Canada Lowest fixed costs
• S. Minn Lowest feed costs
• Highest hog prices
• East. Canada Lowest Farrowing Costs
• Most Profitable Combination
• Farrow pigs in Eastern Canada
• Finish hogs in Minnesota

31
State Herd SizesCompared to September 2000

• Breeding Herds
• Decreased IA, Col. (-19), Ind, OK, Neb
• Increased TX(15), WI (12), PA, SD
• Ohio Even
• Market Herds
• Decreased Col (-13), TX, MI, IA, IN
• Increased KS, IL, PA
• Ohio 3 (40,000 hogs)

32
Ave. Live Weight -- All Slaughtered Hogs
Paylean, Excellent weather
11/01
33
IN-OH Live Hog Price Forecasts Based on Futures
Data and Historic Basis Data Averages and 66
Confidence Intervals
Break-even
Based on Dec 10 futures prices using average and
standard deviation of IN-OH cash basis numbers
from 1992-1999 for the 4 weeks prior to contract
expiration
34
IN-OH Live Hog Price Floor Available with CME
Puts, Including Cost of Premium
Break-even
Based on Dec 10 CME options prices and using
average and standard deviation of IN-OH cash
basis numbers from 1992-1999 for the 4 weeks
prior to contract expiration
35
General Issues

• Changing Ohio Beef Scene
• Smithfield bought
• Moyer Packerland Amer. Foods
• 4th largest slaughter, Vert coordination plans?
• Tyson Not enough to integrate cattle
• Taylor Pack bought by Excel
• Animal Welfare Marches On
• Burg King, Wendys follow McDs on laying hens
• Vowed to improve sow conditions next
• Pizza Chains next (Dominos, Pizza Hut etc)
• Ohio Permitting Process for CAFOs

36
Ohio Permitting Process

• Draft Recommendations to Date
• Oversight diverse advisory panel of 16 members
• Re-permit all permitted operations
• On-site inspections for permit or re-permit
• Public meeting if 20 people request
• On-site inspections required
• Civil Penalties up to 25,000 per week
• Summary on ODA website
• www.state.oh.us/agr/

37
Questions ?
Brian Roe [phone] Roe.30_at_osu.edu
38
(No Transcript)