Hamburger Production in the New Economic Environment GEOFF BENSON, PhD Extension Economist Dept of Agricultural and Resource Economics North Carolina State UniversitySlide 2
Outline Situation and Outlook Beef Production Sales Prices Forecasting costs Cost of generation Weathering the Storm GEOFF BENSON, ARE, NCSUSlide 3
Beef Production, 2001-09F Source: USDA, WASDE reports GEOFF BENSON, ARE, NCSUSlide 4
Meat Production, 2001-09F Source: USDA, WASDE reports GEOFF BENSON, ARE, NCSUSlide 5
Consumer Demand At Home Muscle Meats Processed Meats Prepared Foods Meals Eaten Out GEOFF BENSON, ARE, NCSUSlide 6
Meat Demand Outlook Economic Outlook for 2009 Income: GNP down 2.0% from 2008 Inflation: 1.2%, down from 2008 (~ 3.8%) Unemployment: 8.4% up from 5.8% in 2008 Population development: Up ~ 0.9% Other - demographics , diet trends, and so forth. Meat request down ~ 1.1 lb./individual Beef down 0.6 lb . per individual Chicken down 1.1 lb . per individual Pork up 0.7 lb . per individual GEOFF BENSON, ARE, NCSUSlide 7
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Prices, 2001-09F Source: USDA, WASDE reports GEOFF BENSON, ARE, NCSUSlide 9
2009 Price Outlook The prospects market gives the best sign of what costs are liable to do in light of the fact that members are putting their cash where their mouths are BUT, costs do move taking into account new data, both expected and surprising AND an individual makers cows may not coordinate the agreement particulars, so anticipating costs requires some additional exertion GEOFF BENSON, ARE, NCSUSlide 10
Fat Cattle Futures, $/100 lb, 3/6/09 GEOFF BENSON, ARE, NCSUSlide 11
Feeder Cattle Futures, $/100 lb, 3/6/09 GEOFF BENSON, ARE, NCSUSlide 12
What does this for me? Dairy animals calf: Value of your steers – their specific attributes Time of year of offer Cost of creation Stockers: Buying cost and offering value Cost of increase GEOFF BENSON, ARE, NCSUSlide 13
Feeder Cattle Futures, $/100 lb, 3/6/09 GEOFF BENSON, ARE, NCSUSlide 14
Price Forecasting Nearby Futures Contract Price available to be purchased month "Premise" = fates cost – neighborhood money market cost for comparative item Use premiums & rebates to gauge the estimation of your cows Weight Sex Frame size Muscling Breed or cross Other, e.g., market channel GEOFF BENSON, ARE, NCSUSlide 15
Price Forecasting The most helpful correlation for a bovine calf maker is the NC money (spot) cost and the feeder steers fates cost for the nearest month past the expected deal month But CME feeder steers prospects contract is for 650-849 lb. M&L 1&2 cows in truckload parcels NC Auction Prices are for 600 to 799 lb. M&L1&2 steers Contract months are Jan, Mar, Apr, May, Aug, Sept, Oct, & Nov. GEOFF BENSON, ARE, NCSUSlide 16
"Premise" Basis is the contrast between the spot dairy cattle cost in North Carolina and the cost for practically identical steers in the prospects market If premise is unsurprising, then we can utilize the fates business sector to venture nearby North Carolina costs and utilize this to settle on business choices Some memorable premise information are accessible at http://www.ncsu.edu/venture/arepublication/AREno32.pdf GEOFF BENSON, ARE, NCSUSlide 17
NC Basis, Avg. 1990-2000 GEOFF BENSON, ARE, NCSUSlide 18
NC Basis, 1990-2000 Negative Seasonal: Smaller in spring, bigger negative contrasts in the fall Varied by business sector, west to east Updated data is not accessible GEOFF BENSON, ARE, NCSUSlide 19
Price Forecasting Futures Contract Price available to be purchased month "Premise" = fates cost – neighborhood money market cost for comparative item Use premiums & rebates to gauge the estimation of your steers Weight Sex Frame Muscle Breed Time of year/regularity Other, e.g., market channel GEOFF BENSON, ARE, NCSUSlide 20
Graded Sales, M1 Steers, 1991-2001 . GEOFF BENSON, ARE, NCSUSlide 21
Graded Sales, M1 Steers, 1991-2001 . GEOFF BENSON, ARE, NCSUSlide 22
Graded Sales, M1 Heifers v. Steers, 1990-2001 GEOFF BENSON, ARE, NCSUSlide 23
Graded Sales, 500-599 lb. Steers, 1990-2001 GEOFF BENSON, ARE, NCSUSlide 24
Angus Braford Brahman Brangus Braunveih Charolais Chianina Devon Galloway Gelbveih Red Poll Sahiwal Salers Santa Gertrudis Shorthorn (double) Simmental South Devon Tarentais Zebu + Crosses & Composites Selected Breeds Hereford Holstein (dairy) Jersey (dairy) Limousin Longhorn Maine Anjou Nellore Piedmontese Pinzgaur Polled Hereford GEOFF BENSON, ARE, NCSUSlide 25
Graded Sales, 500-599 lb. M1 Steers, 1991-2001 GEOFF BENSON, ARE, NCSUSlide 26
Marketing Options Regular closeout = Base Graded deal Special projects, e.g., Southeast Pride, pre-molded deals Direct deal Truckload parcels Retained proprietorship GEOFF BENSON, ARE, NCSUSlide 27
Marketing Options Choices are influenced by Number of dairy cattle available to be purchased Uniformity of cows Market premiums differ with technique for deal Marketing cost fluctuates with strategy for deal Consider hazard GEOFF BENSON, ARE, NCSUSlide 28
Price Outlook Use fates value, premise, and data on premiums and rebates to gauge nearby costs as a feature of your generation and showcasing choices But shouldn\'t something be said about expense of creation… GEOFF BENSON, ARE, NCSUSlide 29
. Source: USDA, "World Agricultural Supply & Demand Situation GEOFF BENSON, ARE, NCSUSlide 30
Prices Paid Index for Selected Inputs Source: Agricultural Prices, NASS, USDA, January 2009 GEOFF BENSON, ARE, NCSUSlide 31
Forage Production Costs, NCSU Enterprise Budgets, $/ton of DM GEOFF BENSON, ARE, NCSU GEOFF BENSON, ARE, NCSU 31Slide 32
Beef Production Costs, NCSU Enterprise Budgets, 2008, $/head sold * Includes expense of steers GEOFF BENSON, ARE, NCSU GEOFF BENSON, ARE, NCSU 32Slide 33
Outlook Summary Outlook for US creation, deals and costs is poor: Production @ 26,110 mil. lb . Consumption @ 61.6 lb. per individual Fed steers costs @ $ 89.00/cwt. = Feeder dairy cattle costs at $102.00/cwt Feeder calf costs next fall are required to be like 2008 and still great in respect to noteworthy costs Higher expense of generation Stocker benefits depend vigorously on reckoning value developments accurately or supporting GEOFF BENSON, ARE, NCSUSlide 34
Where are Costs & Profits Headed? GEOFF BENSON, ARE, NCSU Forage Production Continued higher manure costs and tight supplies Temporary help then higher fuel costs Longer term, general cost increments coming about because of higher vitality costs Cattle Higher search costs Continued higher obtained nourish costs Longer term, general cost increments coming about because of higher vitality costs Little change in dairy cattle costs in 2009 Losses for some makers in 2009 GEOFF BENSON, ARE, NCSU 34Slide 35
Economics works! At the point when creation costs increment Producers\' benefits shrink Producers react by purchasing and utilizing less and/or searching for choices If changes underway practices neglect to give back the business to productivity makers cut back and some quit totally Reduced supplies take care of the business sector and costs increment to the point where makers can make satisfactory returns another business sector parity is accomplished GEOFF BENSON, ARE, NCSU 35Slide 36
Economics works! At the point when interest falls Markets are oversupplied, costs fall Buyers react to lower costs by purchasing progressively and by changing far from substitutes or choices, which brings down their costs too Producers react to lower costs by creating less, which directs the cost decreases long haul another business sector equalization is accomplished GEOFF BENSON, ARE, NCSU 36Slide 37
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Cattle Cycles Low costs power liquidation of reproducing stock, adding to hamburger supplies and diminishing costs further Reduced generation prompts higher costs empowering yearling maintenance for rearing, lessening meat supplies and raising costs further Lags bringing about the 10 to 12 year cycle Decision making 15 months to raise a calf to reproducing age Breeding regularity & 9-month growth 14-18 month birth to butcher GEOFF BENSON, ARE, NCSUSlide 41
$ CONSUMER $ Beef Product & $$ Flows RETAILER PROCESSOR WHOLESALER FINISHING PACKER COW-CALF STOCKER GEOFF BENSON, ARE, NCSUSlide 42
The Big Picture Message In the close term, the US meats division – poultry, pork and meat – must psychologist so meat costs can increment. "Shrink" = less domesticated animals promoted and, most likely, less makers The bovine calf maker takes to a greater degree a hit in a downturn and gets a greater amount of the sauce on the rise An unanswered inquiry is the means by which the new cost structure influences provincial aggressiveness Eventually, costs must change in accordance with higher expenses of creation so that enough makers can make an adequate benefit to stay in business There is wide variety in budgetary execution among homesteads GEOFF BENSON, ARE, NCSU 42Slide 43
Cow-calf returns over working cost, US & locales, 2006-7 +$62 N/A +$153 - $ 111 - $70 N/A - $169 +$55 +$1 US avg. net pay over working cost/dairy animals for 2006-7 = - $/10/cwt. Provincial contrasts from US normal are indicated GEOFF BENSON, ARE, NCSUSlide 44
MN Cow-calf Cost & Returns, 2007 Source: MN Farm Business Management database GEOFF BENSON, ARE, NCSU 44Slide 45
MN Stocker Cost & Returns, 2007 Source: MN Farm Business Management database GEOFF BENSON, ARE, NCSU 45Slide 46
Two Issues NC Producers Face All makers are not alike & influence l onger term money related prospects for every individual maker – i.e., intensity Can you survive? Assuming this is the case, would you like to? Fleeting survival systems GEOFF BENSON, ARE, NCSUSlide 47
1. Long haul: Why do you have Cattle? On the other hand FUN OR MONEY? GEOFF BENSON, ARE, NCSU GEOFF BENSON, ARE, NCSU 47Slide 48
Do you know your generation cost? Working expense - out of pocke
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