Market Situation & OutlookMotivationsMarket SituationShort term outlookIntermediate term outlookLong term outlookPowerPoint PresentationShort run forecastSlide 9Own price flexibilitiesCross price flexibilitiesCompare to another periodUsing FlexibilitiesNow forecast suppliesGovernment reportsOther impactsSeasonal patternsSlide 18Cyclical PatternSlide 20Slide 21USDA Sept 2000 Hogs & PigsSept 2000 Hogs & PigsIncreasing ProductivitySlide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Hog Price Forecast, Sept. 26, 2000Market Situation & OutlookInterpret market factors that impact prices and resulting marketing and management decisions»Supply»DemandMotivationsEstimate elasticities for policy analysisEvaluate marketing decisionsEfficient market hypothesisEnhance competition by providing timely and relevant informationInterpret informationMarket SituationDefine current and recent pastTypically measuring change in key variables to estimate change in priceShort term outlookRelatively inelastic supply»Sellers willing to sell at prices less than average total costRelatively stable demandPrices adjust to clear suppliesIntermediate term outlookSupply and demand become more elasticBuyers and sellers better able to react to pricesLong term outlookBuyers and sellers fully adjust to pricesRely on elasticities and cost curves to estimate quantity changesISU Estimated Farrow-Finish Returns & Change in 10 State Breeding Herd Lagged One Year-60-40-2002040608073 75 77 79 81 83 85 87 89 91 93 95 97 99$/Head-25-20-15-10-50510152025Percent ChangeReturns Breeding HerdShort run forecastSupply is relatively inelasticPrice is a function of:»own supply »supply of substitutes»supply of complements »income»population »exports and imports »marketing marginsShort term outlookUse price flexibilities»The percentage change in price for a 1% change in the quantity supplied»Fpi = % Pi / % Q iOwn price flexibilitiesAssumes all else equalAlways negativeTypically in average -2.0 to -3.0 for most ag commoditiesCan differ widely when everything else is not equalCross price flexibilitiesThe percentage change in the price of good i resulting from a 1% change in the quantity supplied of good j»Fpij = % Pi / % Qj»Much smaller than own price flexibilitiesCompare to another periodTypically compare to same time period one year earlierCaptures seasonal demand and marketing margin factorsUsing FlexibilitiesChange in price of hogs from year before = % pork supply ____x -3.0 = ___+ % beef supply ____x -0.3 = ___+ % poultry supply ____x -0.3 = ___+ % income ____x +0.2 = ___+ % population ____x +1.0 = ___Total % Change ___Price a year ago x (1-% chg) = forecast priceNow forecast suppliesChange in supplies»Inventory reports»Biological factorsDemand relatively stableGovernment reportsHogs and Pigs report QuarterlyCattle on Feed MonthlyCattle Inventory Semi-annualSlaughter information Daily and weekly»Numbers, weights, classMarket prices DailyOther impactsImports & exports»Put in perspectiveMarketing marginsSeasonal patternsCyclical patternsCarcass weightsProductivity changesDemand may not be stableSeasonal patternsA price pattern that repeats itself with some degree of accuracy year after year.»Supplies and demand»Often sound reasons»Widely knownIowa S. Minnesota Barrow and Gilt Seasonal Price Index0.940.971.080.980.970.980.930.901.011.101.091.060.850.900.951.001.051.101.15Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.Cyclical PatternA production and price pattern that repeats itself over longer than a year.Production tied to profitsBiological lagHogs and CattleU.S. Cattle Inventory20,00040,00060,00080,000100,000120,000140,00018671887190719271947196719871,000 HeadJohn Lawrence and John Lawrence and Alan VontalgeAlan VontalgeEconomics DepartmentEconomics DepartmentIowa State UniversityIowa State UniversityMarket Outlook – 2000 - 01Market Outlook – 2000 - 01Market Outlook – 2000 - 01Market Outlook – 2000 - 01USDA Sept 2000 Hogs & PigsCategory Mil. Hd %Chg 99All Hogs&Pigs 60.2 -1.0Breeding Herd 6.3 -0.6Market Hogs 53.9 -1.0 Under 60# 20.0 -1.0 60-119# 13.3 -1.0 120-179# 11.0 -0.7 180# & Up 9.6 -1.4Pig Crop Mil. Hd. %Chg 99Jun-Aug 25.68 -0.7Sows FarrowingJun-Aug 2.90 -0.6Sept-Nov * 2.88 +1.4Dec-Feb ‘01** Intentions 2.89 +3.4Sept 2000 Hogs & PigsIncreasing ProductivityJune 1st Breeding herd -4.3%Sows Farrowing Jun-Aug -0.6%Pigs per Litter Jun-Aug -0.1%Resulted in:Pigs Crop Jun-Aug -0.7%Additional weights could push pork production to above year earlier levels.Iowa Southern Minnesota WeeklyAverage Price, Barrows and Gilts101520253035404550551 6 11 16 21 26 31 36 41 46 51$/cwtAvg 90-99199819992000Weekly Hog Slaughter 1999 - 20011500160017001800190020002100220023001 6 11 16 21 26 31 36 41 46 511999 2000 Proj 2000 - 011,000sIowa-Southern Minnesota Weekly Hog Slaughter Weights2452502552602651 6 11 16 21 26 31 36 41 46 51Pounds1997 1998 1999 2000Pork in Cold Storage300350400450500550600JAN MAR MAY JUL SEP NOVMillion lbs.1997199819992000Exports +27.3%; Imports +21.9%»Net exports up 39.7%Japan +13.1%Canada +4.0%Mexico +81.6%Russia +3598.9%Without Russia, exports are +9.8%2000 US Pork Trade Jan-JulyFourth Quarter Hog Price and Supply$15$20$25$30$35$40$45$50$55$605500 6000 6500 7000 7500Million Lbs9091929394959697989900Second Quarter Hog Price and Supply$30$35$40$45$50$55$60$655000 5500 6000 6500Million Lbs909192939495969798990001Fourth Quarter Hog Price and Supply$15$20$25$30$35$40$45$50$55$605500 6000 6500 7000 7500Million Lbs909192939495969798990001Hog Price Forecast, Sept. 26, 2000QuarterYearAgo%ChgForecastPriceOct-Dec 34.40 -0 34-37Jan-Mar 39.20 +0 37-40Apr-Jun 48.20 +2 41-44Jul-Sep 43.80 +4