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U.S. & Global Outlook

U.S. & Global Outlook. Livestock & Ethanol Production. Erin Daley Manager, Research & Analysis U.S. Meat Export Federation. Topics. U.S. Pork Overview Global Pork Overview U.S. & Global Beef Situation Grain & Ethanol Outlook Co-Products of Ethanol Production. U.S. Pork Overview.

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U.S. & Global Outlook

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  1. U.S. & Global Outlook Livestock & Ethanol Production Erin Daley Manager, Research & Analysis U.S. Meat Export Federation

  2. Topics • U.S. Pork Overview • Global Pork Overview • U.S. & Global Beef Situation • Grain & Ethanol Outlook • Co-Products of Ethanol Production

  3. U.S. Pork Overview • Production Trends • Production & Export forecast

  4. Increasing Efficiency of U.S. Pork Production Source: USDA

  5. Pork Exports as a Percent Of Domestic Production are Rising • Exports accounted for only 3% of domestic production as recently as 1990. • Has doubled in the past 6 yrs to nearly 15% today.. • Export growth helps to diversify market portfolio and allows industry to arbitrage on a global basis. Source: USDA statistics and USMEF

  6. Will 2006 U.S. Pork Exports SetAnother New Record High? • 2005 U.S. pork export levels set new milestones: • 1.2 million MT • $2.6 billion • 2006 pork export volumes are 9% ahead of 2005. • Longer-term outlook for U.S. pork exports is bullish. (1,000 MT) Source: USDA/USMEF

  7. Top Pork MarketsUSMEF Export Forecast (000 MT) 4 to 5% annual growth rate Source: USDA/USMEF

  8. U.S. Now Has Over 26% Market Share of World Pork Exports >26% 18% Source: USDA

  9. 30 Years of U.S. Pork ExportsVolume (000 MT) +1534% Source: USDA/USMEF

  10. U.S. Competitive Advantages • Efficient production • Increasing litter sizes • Increasing carcass weights • Consistent high quality pork • Export-minded industry • Favorable exchange rate • Existing infrastructure

  11. Changing Costs of Production • “It now appears that hog feeds will cost $35 to $40 per ton more in 2007 than during the past year, adding $12 to $15 per head to total costs.” Source: Pork Checkoff Report and USMEF

  12. This increase has been driven by 3 key factors: 1. USDA continues to reduce its estimates of U.S. and global coarse grain production 2. The combination of lower production and higher demand driven by the ethanol industry results in record low ending stock estimates 3. Wheat prices have exploded due to a small U.S. crop and declining world wheat supplies as a result of drought conditions in Australia and other major wheat producing countries. • Need to “buy” more corn acres in 2007 Source: Pork Checkoff Report and USMEF

  13. Corn-Soy Cost, 16% Crude Protein diet Source: CME Daily Livestock Report

  14. 2007 Pork Projections • U.S. Production: 2006 RECORD Hog slaughter: 104.490 million head (+0.9% over 2005) • RECORD Carcass weights: (+0.5%) ~204 pounds • 2007: predict lower carcass weights, but already have sow inventory to increase number of hogs brought to market resulting in 3% increase in pork production to over 9.8 million metric tons • Exports: +4 to 5% • Prices for Barrows & Gilts: 8% lower than 2006 average

  15. Global Pork Overview • Trends • Outlook

  16. Global Pork OutlookNet Trade (000 MT) Source: OECD/FAO/USDA

  17. EU Pork PS&D Source: USDA

  18. Chile’s Pork Exports to Top Markets Source: Global Trade Atlas 2006*: Jan-November

  19. 2007 Global Pork Outlook • Denmark (EU-25): strict animal welfare regulations restrict growth in production, lack the ability to export chilled pork- production and exports relatively constant • Canada: Pork slaughter down 11.5% in 2006 Prediction: 2007 production -1.3%, strong Canadian $, high labor costs, rising feed costs will limit growth in exports • Brazil: disease status will continue to impact their exports, but production & exports will likely increase • China: production increases, but exports decline as domestic consumption rises • Others? Chile: production (+4%) & exports (+8%)

  20. Major Issues • Rising global grain prices • Disease status • Animal welfare • Labor • Environmental regulations

  21. Brief Overview of Beef Situation • U.S. trends • Global trends

  22. 30 Years of U.S. Beef ExportsVolume (000 MT) +1,679% Source: USDA/USMEF

  23. Global Beef OutlookNet Trade (Million MT) Source: OECD/FAO/USDA Estimates

  24. USDA’s 2007 Projections Red Meat Production • Beef Production: +2.3% to over 12 million MT Live Animal Market Prices • Choice Steers: similar to last year

  25. Grain & Ethanol Outlook

  26. U.S. Ethanol Plants AS OF: July 2006 In operation Under construction Proposed

  27. Ethanol and Corn Statistics • 111 Current ethanol plants in the U.S. • 78 Planned ethanol plants • Currently produce 5.5 billion gallons/year, adding planned plants will double production • 54.6 million MT and 20% of 2006/07 U.S. corn crop will be used for ethanol • 8% of 2006/07 world corn crop used for U.S. ethanol production • Nearly 70% of 2006/07 world corn crop used for feed

  28. U.S. Ethanol Production (million gallons) Source: Renewable Fuels Assn.

  29. Corn Used in Ethanol Production > 20% of U.S. Crop Source: USDA; million bushels

  30. Snapshot of a Dry-Mill Ethanol Plant • 50 Million gallons of ethanol per year • 16.67 Million bushels of corn (3 gallons/bushel) • 1.28 Million metric tons of DDGS (17 pounds/bushel) • DDGS Price: $77.56/ton • Providing a credit of: $0.66/bushel • Operating Costs of a Plant: $0.52/gallon • or $1.56/bushel (F.O. Lichts, 2006) • Plant costs: 80 million (amortized over 10 years) • capital cost of $0.24/gallon or $0.72/bushel Source: Center for Agricultural and Rural Development

  31. Ethanol Plant’s Breakeven Corn Price At $1.89/gallon ethanol (assuming oil is > $60/barrel) • Income of $5.67 for the ethanol produced from 1 bushel of corn • Plus $0.66 per bushel from the DDGS= $6.33 • Total Cost of Processing the bushel of corn: $2.28 ($1.56 for variable costs and $0.72 for fixed costs) • Total Revenue $6.33 minus Total Costs $2.28= Breakeven Corn Price $4.05/bushel Source: Center for Agricultural and Rural Development

  32. Source: Center for Agricultural and Rural Development

  33. Top 5 Markets for U.S. Corn Exports 2005/06

  34. Argentina Corn Production & Exports Exports +2.5 mil MT Production +3.2 mil MT

  35. China Corn Supply and Use

  36. World Coarse Grains Production (MT) U.S. China EU-25 Brazil Source: OECD/FAO

  37. World Coarse Grain Net Trade Source: OECD/FAO

  38. U.S. Corn Distribution (000 MT) Source: USDA

  39. U.S. Corn Utilization (million bushels) Source: USDA

  40. Corn Supply Response • U.S. • Acres out of soybean production • Corn-on-corn crop rotation • Land out of Conservation Reserve Program (CRP) 4.3-7.5 million acres • Yield increase of 3 bushels/acre/year • 5% increase in acres 07/08 • 5% increase in acres 08/09 • Rest of World • Advanced production practices to increase yields • Plant more acres WEATHER will be a major factor

  41. Corn Demand Response • U.S. • Decreased demand from feed and residual use • Some feed substitution (DDGS), fewer numbers of livestock on feed, finish animals at a lighter weight, put more weight on outside feedlots (cattle) • Reduced export demand due to high corn price and increasing availability from other suppliers • Rest of World • Face higher world corn prices… how strong is demand?

  42. Feed Ingredient Prices ($/short ton) Source: USDA/USMEF estimates

  43. NYMEX July Crude Oil Futures

  44. CBOT Ethanol Futures

  45. NYMEX July Natural Gas Futures

  46. CBOT July Corn Futures

  47. CBOT July Soybean Meal Futures

  48. CME July Lean Hog Futures

  49. CME July Feeder Cattle Futures

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