Wednesday, November 10, 2010

Corn Prices Supported Growing Ethanol Production

Corn prices continue to be supported by expectations that the USDA will reduce the forecast size of the 2010 U.S. crop and by a rapid pace of ethanol production. The rate of exports and export sales has been somewhat disappointing, according to University of Illinois agricultural economist Darrel Good.

"Reported expectations for the Nov. 9 USDA Crop Production report are for a slightly lower yield and production forecast, with the average yield guess reported at 154.4 bushels. The October forecast was 155.8 bushels. A smaller production forecast without any change in the consumption forecasts would further reduce the
expectations for the size of year-ending stocks."

A 114-million-bushel reduction in the forecast of crop size, as implied by a yield of 154.4 bushels, would reduce the projection of year-ending stocks to 788 million bushels or 5.8 percent of projected consumption.

Ethanol production during the first nine weeks of the 2010-11 corn marketing year averaged 36.344 million gallons per day. Average daily production in September and October 2009 was 30.833 million gallons per day. Corn use for ethanol production this marketing year then is running 17.9 percent ahead of last year's pace.

"For the year, the USDA has projected a 3.1 percent increase in the amount of corn
used for ethanol production. If that projection is correct, the pace of ethanol
production during the final 43 weeks of the current marketing year will have to only
equal that of a year ago."

It appears that the pace of ethanol production could be significantly influenced by
the fate of the blender's tax credit that is due to expire at the end of the current
calendar year.

"The projected level of ethanol production in 2011 is above the mandated level. Now
that ethanol prices have moved above gasoline prices, ethanol blending margins would be negative without the blender's tax credit. With negative margins, ethanol
blending could decline to or below the mandated level, as blenders use credits
generated by recent excess blending levels to partially meet the mandates."

An increase in gasoline prices relative to ethanol prices would, of course, improve
blending margins and maintain blending levels.

The USDA has projected 2010-11 marketing year corn exports at 2 billion bushels, only 13 million more than exported last year. Through the first nine weeks of the marketing year, cumulative export inspections were reported at 313.5 million bushels, about 16 million less than the total of the previous year. The weekly Export Sales report shows a similar lag.

Good said that Census Bureau estimates of exports typically exceed those of the USDA, but they are not yet available for the current marketing year. The Census
Bureau estimates for September 2010 should be released this week and will be a
better indicator of the year-to-year change in shipments.

"For major customers, USDA estimates indicate that shipments of corn so far this
year are running slightly ahead of last year's pace only for Japan and Egypt. The
year-to-year declines are largest for South Korea and Mexico,."

Outstanding export sales as of Oct. 28 were substantially larger than those of a
year ago. Unshipped sales were reported at 504 million bushels, 105 million more
than those of a year ago.

"Japan, Egypt, and Mexico all have large purchases on the books. South Korea does
not. South Korean export commitments (shipments plus outstanding sales) were down 37 million bushels (also 37 percent) from those of a year ago. There are large sales to unknown destinations but none reported for China."

Although the current magnitude of outstanding sales supports the USDA's projection
of marketing year exports, the concern centers around the slow pace of sales for the
three weeks ended Oct. 28. Sales averaged only 15.8 million bushels per week during
that period. New sales of 25 to 30 million bushels per week would be more encouraging.

"Corn prices have traded in a fairly narrow range over the past three weeks, with
December 2010 futures establishing a high of $5.95 on Nov. 4. Prices should continue to be well supported if USDA does lower the 2010 production forecast. After that report, prices will reflect the pace of consumption. Near term, the focus will be on
the export pace and the fate of the ethanol blender tax credit."

Source: Darrel Good, 217-333-4716,

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Thursday, October 21, 2010

Market Watch: Cattle Markets

Last week, cattle feeders held out for higher money and, rather unexpectedly, got it on a relatively light volume of cattle. The futures market was apparently caught a little off guard by the roughly $1.50 higher cash cattle prices, and nearby Live Cattle futures raced to catch up, adding over $2 in Friday’s trading. Higher fed cattle prices were supported by stronger wholesale beef prices. The Choice cutout added almost $2 over the course of last week, ending up at $154.68 on Friday.

Feeder cattle futures also gained back some ground on Friday as the corn market took a breather from its recent rally. Cash calf markets were hit pretty hard last week, though, with prices (especially on stocker cattle) dropping in response to the prior week’s corn market shock. At Oklahoma City, feeders were called $2 to $3 lower while stockers were called $5 to $8 lower.

John Michael Riley, Ph.D., Asst. Extension Professor, Department of Agricultural Economics, Mississippi State University
John D. Anderson, Ph.D., Livestock Economist, American Farm Bureau Federation

Thursday, October 14, 2010

Markets Whipsawed

December 2010 corn futures traded to a high of $5.235 on September 27 and closed at $5.05 on Sept. 29. On Oct. 4, the surprisingly large USDA Sept. 1 corn stocks estimate released on Sept. 30 sent that contract to a low of $4.56, said University of Illinois agricultural economist Darrel Good.

Similarly, the November 2010 soybean futures contract traded to $11.295 on Sept. 27, closed at $10.99 on Sept. 29, and declined to $10.44 on Oct. 4, he said.

"Price declines came to a halt with the release of USDA's October Crop Production report on Oct. 8. That report contained a unexpectedly small forecast of the size of the U.S. corn and soybean crops," he said.

The corn crop is now forecast at 12.664 billion bushels, 496 million smaller than the September forecast and 446 million smaller than the 2009 harvest. Although the estimate of harvested acreage was increased by 258,000 acres, the forecast yield was lowered by 6.7 bushels, to 155.8 bushels, he said.

"The decline from the September forecast was record large, eclipsing the 4.3 bushels of 1974 and the 4.5 bushels of 1995. Yield forecasts declined by 14 bushels in Illinois, 10 bushels in Indiana and Iowa, and 9 bushels in Missouri and Nebraska. The December 2010 futures contract traded to a high of $5.73 on October 11," he said.

The 2010 soybean crop is now forecast at 3.408 billion bushels, 75 million smaller than the September forecast, but 49 million larger than the 2009 crop.

"The lower forecast this month reflected a reduction of 1.163 million bushels in the estimate of harvested acreage and a 0.3 bushel reduction in the yield forecast. At 44.4 bushels, the 2010 average U.S. yield is still expected to be record large. The November 2010 soybean futures contract traded to a high of $11.89 on Oct. 11."

In a separate report, the USDA lowered the estimate of feed and residual use of corn during the 2009-10 marketing year as a result of the larger than expected Sept. 1 stocks estimate of Sept. 30.

"For the current year, the forecast of corn exports was reduced by 100 million bushels, reflecting the anticipated impact of higher prices and increased competition from Argentina. Some had expected an increase in the forecast of Chinese imports of U.S. corn, but no changes were made in the projected corn balance sheet for China. The forecast size of the 2011 Argentine harvest was increased by 157 million bushels."

The forecast of feed and residual use was increased by 150 million bushels, to a total of 5.4 billion bushels.

"The USDA argued that apparent use during the first quarter of the year will be boosted by the early harvest that resulted in consumption of new crop corn before Sept. 1, but the argument is not entirely convincing. The combined estimates of feed and residual use of corn for the 2009-10 and 2010-11 marketing years appear too large.

"Use during the first quarter will not be revealed until the Dec. 1 stocks estimate is released in early January. Some indication of feed use will be revealed in the monthly cattle on feed reports and the weekly reports of egg sets."

Stocks of corn at the end of the 2010-11 marketing year are forecast at a 14-year low of 902 million bushels, or 6.7 percent of projected consumption, he noted.

"We consider a 5 percent stocks-to-use ratio, as experienced in 1995-96, to be a minimum carryover level. The USDA expects the 2010-11 marketing year average farm price to be in a range of $4.60 to $5.40, well above the previous record of $4.20 during the 2007-08 marketing year.".

For soybeans, the forecast of the size of the domestic crush during the current year was increased by 15 million bushels and the forecast of exports was increased by 35 million bushels.

"At 1.52 billion bushels, exports are expected to be 22 million bushels larger than in the previous year. While the USDA increased the projected size of the 2011 Brazilian harvest by 73 million bushels, South American production is still expected to be 276 million bushels smaller than the record harvest of 2010.

"In addition, China is expected to import 2.02 billion bushels of soybeans from all sources during the current marketing year, up from 1.855 billion last year."

Stocks of U.S. soybeans at the end of the 2010-11 marketing year are projected at 265 million bushels. That is a comfortable level of stocks, but it is 85 million less than last month's projection. The 2010-11 marketing year average farm price is projected in a range of $10 to $11.50 so the record of $10.10 during the 2007-08 marketing year may be exceeded.

"Corn and soybean prices will now be influenced by expectations about the November production forecasts and the revealed rate of consumption. Chatter about acreage
needs in 2011 has already begun, but it is likely premature."

The actual rate of consumption over the next six months and the size of the South American crops will have significant impacts on U.S. acreage needs in 2011. Early thinking is that more corn acres will be needed in 2011. The degree of acreage competition for spring planted crops will be influenced by winter wheat seeding decisions to be revealed in early January.

Source: Darrel Good, 217-333-4716

Monday, October 11, 2010

2010 Crop Production and World Agricultural Supply-Demand Estimate

In the October 8 2010 Crop Production and World Agricultural Supply-Demand Estimate (WASDE) reports, the USDA made changes in its supply-demand projections that have strong positive impacts on U.S. and World feedgrain price prospects, as well as positive direct and cross-crop market effects on soybean and wheat price prospects.

Market Implications for U.S. Corn and Grain Sorghum: Projections for MY 2010-11 of U.S. corn ending stocks below 1 billion bushels (902 mb) and % stocks-to-use of 6.7% (nearing historic lows of 5% in MY 1995-96) provide strong supply-demand support U.S. corn and grain sorghum prices for the remainder of 2010 and into 2011. With improved U.S. cash corn price projections for MY 2010-11 in
the $4.60 to $5.40 /bu range, it is likely that price rationing will have some impact on feedgrain use.

MY 2010-11 appears to be a “short crop” marketing year for U.S. corn and other feedgrains. If a typical short crop corn price pattern emerges in MY 2010-11, then strong prices in late fall 2010 may be matched or exceeded in the spring 2011 due to uncertainty about U.S. feedgrain and oilseed acreage (i.e., “bidding for acres) and weather-driven crop production prospect concerns.

Market Implications for U.S. Wheat: World wheat ending stocks for MY 2010-11 are projected to decline to 175 mmt (26.3% S/U), down from 197 mmt (30.2% S/U) in MY 2009-10. However, MY 2010-11 ending stocks are still projected to be 50 mmt above MY 2007-08 when they declined to a 30 year record low of 124 mmt (˜ 20% S/U). Even though World wheat stocks in MY 2010-11 are not projected to be as tight as in MY 2007-08, wheat prices have been supported by the market impact of a) export limits from Black Sea countries, b) the possibility of production problems in some major wheat exporters, c) continued steady growth in World wheat usage, and d) the current availability of sizable U.S. wheat stocks to help meet World export demand. Unless World wheat production markedly expands to meet or surpass wheat usage in the next 1-2 years or longer, ending stocks will likely be relatively tight, supporting U.S. wheat prices at historically high levels.

Market Implications for U.S. Soybeans: Current USDA WASDE soybean market projections for MY 2010-11 World supplies, domestic demand, exports, and ending stocks appear likely to support historically high U.S. price levels (i.e., $10.00 to $11.50 /bu for MY 2010-11). However, any appreciable threat to World soybean supply and/or demand factors could be expected to spark extreme price volatility in soybean markets. In particular, world soybean markets will be vulnerable to soybean production problems in either the U.S. or South America, or to any weakness in world soybean export demand, particularly from China given its dominant role in world soybean and soybean product markets.

With strong prices forecast for both corn and soybeans for MY 2010-11, it is likely that a strong competition for U.S. crop acres will occur in the spring of 2011, with new crop NOV 2011 soybean and DEC 2011 corn futures reflecting market concerns about 2011 acreage and production prospects.

Source: Daniel O’Brien, Extension Agricultural Economist, Kansas State Research and Extension

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Artwork: Wheat Field with a Lark by Vincent van Gogh

Tuesday, October 5, 2010

Corn Inventory Estimate Exceeds Expectations

The USDA's September Grain Stocks report indicates that the corn that went missing in June was found in September. The USDA's June 1, 2010 corn stocks estimate released on June 30 showed a surprisingly small inventory of corn. That estimate helped ignite a three-month rally in corn prices, says University of Illinois agricultural economist Darrel Good.

"At the time of its release, the June corn inventory estimate created a lot of discussion about what happened to the 250 million bushels of corn that had gone missing. The small stocks estimate resulted in a very large estimate of feed and residual use of corn during the third quarter (March - May 2010) of the 2009 -10 marketing year."

That large estimate resulted in the USDA increasing the projection of feed and residual use for the entire marketing year by 175 million bushels, to a total of 5.525 billion bushels. And that projection appeared to be unrealistically large but was maintained in the balance sheet through September due to the lack of survey data to confirm or refute the projection.

The projection of large feed and residual use resulted in a projection of 2009-10 marketing year ending stocks of 1.386 billion bushels. Such a small projection underscored the need for a large 2010 crop and provided support for prices during September as expectations about the size of the 2010 crop were reduced.

"On September 30, the USDA released the estimate of September 1 corn stocks. That estimate of 1.708 billion bushels exceeded the USDA's earlier projection by 322 million bushels and was regarded as bearish even though the market was anticipating stocks to be larger than had been projected."

"Some observers tried to explain the large stocks estimate by speculating that some of the newly harvested crop was included in the estimate of 'old crop' inventories."

However, the USDA explicitly asked survey respondents to include only stocks of corn harvested before 2010 in their estimates. To the extent that respondents mistakenly included 2010 crop in their estimates, the misreporting should not have been a larger issue than in the past. Corn harvest progress was minimal on September 1 and was only marginally higher than the average pace at the end of the survey period.

The September 1 stocks estimate implies a very small feed and residual disappearance of corn in the final quarter of the marketing year. The small estimate for the quarter, however, offsets the large estimate for the third quarter, resulting in a
reasonable estimate of about 5.2 billion bushels for the 2009-10 marketing year.

That magnitude of disappearance is about equal to both the disappearance in the 2008-09 marketing year and the projection of use during the current marketing year.

"The large estimate of September 1 stocks has important implications for the balance sheet for the 2010-11 marketing year. Without changes in the forecast size of the 2010 crop or changes in projected use during the year, the projection of ending stocks would be increased by 322 million bushels, to a total of 1.438 billion bushels."

To maintain the projection of year-ending stocks at 1.116 billion bushels, some combination of a lower production forecast or a larger consumption forecast totaling 322 million bushels will have to occur.

"If all of the change came in crop size, without a change in the estimate of harvested acreage, the U.S. average yield forecast would have to be lowered from the current 162.5 bushels to 158.5 bushels."

Prior to the release of the September stocks estimate, there was some expectation that the yield forecast would be lowered enough to require corn consumption to be less than projected. Such rationing of consumption would likely have required even higher prices.

"The September stocks estimate reduces the likelihood of such a rationing scenario, tends to lower price expectations, and increases the chances that prices have peaked.

"There is still some expectation that the USDA will lower the 2010 average yield forecast next week, but there is uncertainty about the acreage estimate and the resulting production forecast."

Following the release of the September stocks estimate, corn prices declined to the early September lows, suggesting there is less concern about corn supplies and an understanding that the September stocks estimate did not include new crop inventories. The USDA confirmed that inclusion of such stocks is very unlikely.

The USDA's new production forecast and updated forecast of marketing year consumption to be released in separate reports on October 8 will provide a clearer picture of whether supplies are adequate or rationing will be required.

Source: Darrel Good, 217-333-4716

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Artwork: Corn Rows by Gary Ernest Smith

Monday, September 27, 2010

Corn Prices Ring An Alarm Bell for Hog Producers

Hog producers were ready to expand this fall. That may have been appropriate when 2010 corn prices were expected to close at $3.50 in early July, but that is no longer an acceptable conclusion with expectations closer to $5.00, according to Purdue University Extension economist Chris Hurt.

"Higher corn prices will cut margins over the coming 12 months, but hog producers can now avoid an expansion that would plunge margins deep into the red in late 2011 and 2012," he said.

"The clear message for the industry is: Don't expand and margins will be okay. The other important message is: The next two years will not be a repeat of the large losses of 2008 and 2009," he added.

Fortunately, the September USDA survey indicates there are no signs of expansion yet. Producers report they have 2 percent fewer animals in the breeding herd than a year ago, he said.

The primary story is in North Carolina where breeding herd numbers were down 110,000 head over the past year. In fact, without North Carolina, the net effect of all other states was close to unchanged, he said.

"So will expansion occur? One key to watch is large corporate producers with production in North Carolina. There is likely little appetite for expansion over the next 12 months that would throw the industry back into losses," he said.

The number of market animals on September 1 was down 3 percent. This will lead to a reduction of 3 percent in slaughter numbers in the last quarter this year and 1 percent in the first quarter of next year. This fall's farrowing intentions were down 1 percent and will result in unchanged to 1 percent higher slaughter numbers in the second quarter of 2011, he said.

This winter's farrowing intentions move up modestly and would result in a 1 to 2 percent increase in slaughter numbers next summer. The final quarter of 2011 might see slaughter numbers up 2 to 4 percent, he said.

"Marketing weights dropped below year-ago levels in late August as higher corn prices began to have an impact. Given the expectation for corn prices to remain high for the 2010 crop, it is likely that weights will continue to be down one-half to 1 percent through next summer," he said.

"This means pork supplies will be down 3 percent in the fourth quarter this year, down 2 percent in the first quarter of 2011, unchanged in the second quarter, up 2 percent in the third quarter, and up 3 to 4 percent in the final quarter of 2011," he said.

The U.S. average corn price will be at a record high for the 2010 crop and may approach $5.00 per bushel. "This is sharply higher than the $4.20 average for the 2007 crop, so why won't the pork industry repeat the losses of 2008 and 2009?"he said.

"There are three critical reasons: (1) pork producers have adjusted their herds lower such that they can pay $5.00 per bushel for corn and still maintain positive margins, (2) the U.S. and world economy will continue to recover, and (3) H1N1 will not deflate hog prices," he said.

The high cost of pork production resulting from high priced corn has been passed to consumers who are now paying record high prices for pork. Retail prices averaged $3.23 per pound for the most recent month compared with an average of $2.93 in 2008 and 2009, Hurt said.

"It was a long and difficult adjustment for the industry to reduce production over the past three years, but that is behind us. Now national average hog prices will be high enough over the next 12 months to pay up to $5.50 per bushel for corn and still cover all costs. This is a much different situation than in 2008 and 2009 when the break-even corn price for hog producers was only $2.70 per bushel," he noted.

Hog prices are expected to average about $55 on a live weight basis for the final quarter of 2010 with a break-even corn price of $5.15. A $56 average price is expected for the first quarter of 2011 with a break-even corn price of $5.30, he said.

Prices should rebound in the second and third quarter, averaging $60 and $57, with corn break-even prices of $6.10 and $5.50 per bushel. If production is up as much as 4 percent in the final quarter of 2011, prices will drop back near $50 and corn break-even prices will drop to $4.10. This demonstrates how even a modest expansion can put margins at risk, he said.

"Plans for expansion need to be put on hold for another year until the size of the 2011 corn and soybean crops are reasonably known. World corn inventories cannot be rebuilt on southern hemisphere production this winter. A large crop in the United States and northern hemisphere in 2011 will be required to begin to restore inventories," he said.

Pork producers should not panic, he said. "This is not a repeat of 2008-2009, and producers can get through the coming 12 months. They should avoid expansion, increase feed efficiency, and reduce marketing weights, and margins should remain positive. Fear about the 2011 crops is already building among hog producers who are wondering how high corn prices can go if that crop is not record large," he said.

Hurt said that is panic thinking. "For now, don't expand. Do what you can and leave 2011 adjustments to 2011," he said.

Source: Chris Hurt, 765-494-4273

Monday, September 20, 2010

The Cattle Markets

The fed cattle market was steady to a little higher this past week. Trade took place mid week with decent volume. Prices were mostly $97 on a live weight basis and were $152-154 on a dressed basis.

Choice boxed beef prices were down more than $2 this week. The Choice-Select spread decreased slightly and remains at the typical level.

Feeder cattle prices were steady to lower this past week compared to last week’s prices. Montana prices were steady for 750 and for 550 pound steers. Nebraska prices were $1 lower for 750 and $4 lower for 550 pound steers. Oklahoma prices were $1.50 lower for 750 and $2.50 lower for 550 pound steers compared to last week.

Corn prices were a $.21 higher per bushel than last week. Dried Distillers Grain prices were $7 per ton higher and wet distillers grains were priced a little higher in Nebraska for the week.

Livestock Marketing Information Center

Sunday, September 12, 2010

Market Looks Promising for Sale of Some 2011 Wheat Now

As Nebraska winter wheat growers head to the field, the markets continue to move in their favor and marketing the 2011 crop should be on their minds. The cash market for winter wheat to be delivered in July 2011 has remained above $5.50 per bushel for the past month. For those producers interested in forward contracting winter wheat and carrying proper crop revenue insurance coverage, this may be a good time to contact the local elevator.

The 2010 UNL Crop Budgets show cash cost for wheat production to be near $2.25 per bushel for both irrigated and dryland production. Total costs for irrigated winter wheat are near $3.40 per bushel, and dryland costs are between $3.50 and $4.00 per bushel depending on the production system. Armed with this information, the $5.50 and higher prices that we see right now allow farmers to lock in a reasonable profit for the 2011 crop prior to putting it in the ground.

Looking back over the past ten years, this will be the fifth year that the September price is above total cost of production. Of the previous four years that had profitable prices at harvest, only three of them were above total costs at harvest. In addition, another year, while above total cost, was below the planting time price at harvest. In other words, over the past ten years only twice has the price at harvest exceeded the price at planting AND been higher than the total cost of production. Knowing this, it may be a great time to look at marketing some winter wheat for delivery in 2011. Selling as much as 20% - 30% of the expected crop would not be out of reason in this market.

With the present wide basis levels, futures contracts may not be as attractive as they have been in previous years. The basis risk in the market today is a challenge for the traditional hedge until some stability in basis relationships returns. Cash forward contracts appear to be more attractive for producers than they traditionally have been.

Much of the current price strength is based on poor crop expectations in other production areas in the rest of the world and general weakness of the dollar. With recent increases in price based on export potential, the price movement either upward or downward is going to be tenuous for the next year. Marketing small percentages of the next crop over time may be a good strategy for those farms that are comfortable with marketing ahead of harvest.

Paul Burgener
Extension Ag Economics Research Analyst
University of Nebraska–Lincoln

Monday, August 30, 2010

Good Year for Georgia Pecans, Bad for Peanuts

Georgia's tobacco and pecan crops are on pace for a surprisingly good year, but above-normal temperatures have taken a toll on peanuts and cotton. Pecan trees are alternate-bearing, meaning they produce a full crop every other year; most trees in Georgia are on the same cycle and this was supposed to be an "off" year for pecan production, but Georgia farmers will likely produce 75-80 million pounds, double what has been produced in other off years. Extreme heat in July and early August hurt peanut plants' ability to set peanut pods. Yield is expected to be 3,300 pounds per acre, or 7 percent less than last year. [University of Georgia Cooperative Extension]

Placements of Cattle on Feed Has Slowed

USDA released its August Cattle on Feed report last Friday, reporting its inventory estimates for feedyards with 1,000+ head capacities. Net placements of cattle on feed during July, at 1.706 million head, were down 6.3% compared to last year, marking the first month since February to see a reduction in placements relative to 2009.

While July placements were still 1-2% higher than what the trade expected prior to the report’s release, it did confirm that the sharp increase in placements during May and June slowed last month. Part of this percentage decline in placements relative to a year ago is a function of Summer 2009 placements.

Last year, May and June placements were down sharply and July placements were above the 5-year average. Thus, larger placements this May and June and smaller July placements would be expected just for average placements. Feedlot profitability and grass conditions have also driven this summer’s placement pattern.

Good feedlot returns following the rally in fed cattle prices in April encouraged higher placements in May and June. Higher corn prices, strong feeder cattle prices, and the seasonal drop in fed cattle prices contributed to July placements forecasting breakeven or even negative margins. Additionally, very good pasture and range conditions are allowing stockers to remain on grass longer this year, and thus weren’t placed on feed in July.

The largest reduction in placements was observed for 600-699 lb. feeder cattle (down 16.4%) and <600 lb. feeder cattle (down 8.8%). Placements of cattle weighing 700-799 lb. were down only 2%, while 800+ lb. placements were steady with year-ago levels. The largest decreases in placements occurred in Texas (-17.7%), Oklahoma (-29.0%), and Arizona (-16.0%), while South Dakota, Iowa, and California saw increases of 13-14%.

Marketings for the month of July totaled 1.903 million head, 1.7% less than July 2009 and about 1.5% less than analysts expected prior to the release of the report. Although these numbers are somewhat negative, an improvement in slaughter numbers in August should mitigate the impact of the lower marketings.

Further, July 2010 had one less marketing day than July 2009, so average daily marketings were actually up about 3% compared to last year. As a result, feedyards continue to remain very current.

The number of cattle on feed for more than 120 days on August 1 was 8% less than one year ago. Additionally, steer dressed weights remain below year-ago levels (8 lb. lighter) and, despite seasonally increasing, are being held in check by excessive heat and humidity in the central U.S. cattle feeding areas. With slightly more placements and fewer marketings than expected in July, the August 1 cattle on feed inventory was slightly higher than expected as well. At 9.873 million head, the cattle on feed total was 2.4% higher than August 1, 2009, but 2.7% less than the 5-year average. Overall reaction to the report was viewed mostly neutral to slightly bearish. However, overriding bullish fundamentals have continued to support fed cattle prices. Strong exports, improving domestic demand, and purchases for the Labor Day weekend provided strong support in the fed cattle market last week.

Trade developed late Wednesday afternoon at sharply higher prices, and feedyards continued to sell cattle into the evening hours beyond what was on their showlist for the week. Prices in Nebraska were generally at $155/cwt on a dressed basis, or $97-97.50/cwt on a live basis. Additional sales continued in Nebraska on Thursday, at $155-156/cwt (dressed) or $99-100/cwt (live). Texas and Kansas also saw active trade on Thursday, reaching $100/cwt on a live weight basis.

For the week, the 5-area fed cattle price averaged $98.65/cwt (live) or $154.55/cwt (dressed), up $4-5/cwt for the week. These higher prices were underpinned by a strong rally in the boxed beef market. Choice boxed beef averaged nearly $5/cwt higher last week. Higher fed cattle prices supported yearling feeder cattle prices last week that were about $1/cwt higher in Oklahoma and $2.50/cwt higher in Nebraska. Calf prices, however, were more susceptible to the $0.08/bu increase in corn prices, and ended the week at steady to lower prices. Despite a small increase in distillers grain prices last week, they continue to remain a good buy for rations, with DDGS and WDGS price trading at 70% and 60%, respectively, of the corn price (dry matter basis).

Source: Darrell R. Mark, Department of Agricultural Economics, University of Nebraska–Lincoln

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Illustration: Antique Cattle I

Saturday, August 14, 2010

Strong Mid-year Results for US Pork, Beef Exports

A very solid June performance allowed U.S. pork and beef exports to finish the first half of 2010 with strong momentum. According to statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF), pork exports of 164,000 metric tons (361.6 million pounds) were 24 percent higher than June 2009. Pork export value was $316.4 million, up 34 percent. June beef exports were 25 percent above year-ago volumes, totaling 96,578 metric tons (212.9 million pounds), while the value in June was up 37 percent to $377.6 million.

For the first six months of the year, pork exports were 3 percent above their year-ago pace in terms of volume (951,803 metric tons or 2.1 billion pounds). But with much-improved pork prices, export value was nearly 10 percent higher at $2.35 billion. This is slightly higher than the value reached in the first half of 2008 ($2.32 billion), the year in which pork export value set an all-time record.

Export value per head during the six-month period was more than $44 - up significantly from $39.20 in 2009. The industry exported 24 percent of its total production, compared to 23 percent last year.

Beef export volume reached 495,443 metric tons (1.09 billion pounds) - up 14 percent over the first half of 2009. Export value has fared even better, rising 22 percent to $1.83 billion. Export value per steer and heifer slaughtered was $139, compared to less than $115 last year. The percentage of total production exported increased from 10 percent to 11 percent.

(Note: Export totals include both muscle cuts and variety meat, unless otherwise indicated.)

Monday, July 12, 2010

Low Milk Prices Push Dairy Farm Consolidation

A long period of low milk prices will likely accelerate dairy-farm consolidation in Pennsylvania, according to an industry expert in Penn State's College of Agricultural Sciences.

Chad Dechow, associate professor of dairy cattle genetics, sees the United States dairy industry migrating more toward the hog industry model. A sizable contingent of small farms that can produce milk cheaply, rely on nonfarm income sources, or incorporate a niche market will remain. The majority of milk, however, will be produced by a limited number of very large operations with several thousand or more cows spread across "satellite dairies."

"We are likely to see fewer single-site, large-family dairies," he said. "Much of this consolidation in Pennsylvania will come from large family dairy farms that continue to grow and some operators may come from Western dairies that purchase satellite dairies farther east."

"Unfortunately, some 1,000-cow operations that would have been considered sizable just a short time ago have gone bankrupt due to low farm milk prices," Dechow added. "Extremely large Western dairies have purchased many of those farms in the West to run as satellite locations and are poised to push eastward."

Current dairy-industry expansion is minimal, as the number of dairy animals in the United States remains flat, and the national herd is 170,000 animals smaller than last year. Despite this decrease in the number of animals, dairy farms produced 20 million gallons more milk this May than they did in May 2009, according to the U.S. Department of Agriculture.

"Pennsylvania dairies have the potential to be shielded from the national trend to some extent," said Dechow. "Consumers want to support family dairy farmers who take care of their cows, and nobody produces milk closer to the way consumers would like it to be produced than Pennsylvania's dairy farmers. For Pennsylvania's dairy industry to thrive and remain one of the largest in the country, the industry must do a better job of connecting with consumers and return a larger proportion of the retail milk price to the types of farms consumers want to support."

Source: Penn State Ag Sciences

Monday, June 7, 2010

Chances for Crop Price Recovery

The prices of wheat and soybeans have been trending lower since late April and early May. Corn prices declined sharply last week.

After moving to near $5.15 in early May, July 2010 wheat futures at Chicago are now near $4.35. Similarly, November 2010 soybean futures spiked to about $9.85 in late April and are now under $9.00, the lowest since last fall. December 2010 corn futures traded in a fairly wide sideways pattern during April and May, with a spike to just under $4.00. That contract is now near $3.55, the lowest since early September 2009. Recent price declines for all three crops continue the general downward trend that began in January 2010.

"A record pace of consumption of U.S. corn and soybeans during the current marketing year and prospects for a much smaller U.S. wheat harvest in 2010 provided some price support earlier in the year, but are now overshadowed by other factors," said University of Illinois agricultural economist Darrel Good.

"Crop prices have been negatively impacted by a sluggish economic recovery, high domestic unemployment rates, and increasing financial stress in Europe. In addition, a record large South American soybean crop in 2010, prospects for a third consecutive year of large wheat crops outside of the United States, and prospects for a rebound in corn production in China and Mexico all point to sluggish demand for U.S. crops in world markets."

Adding to the recent negative tone in the crop markets is the growing confidence in large U.S. corn and soybean crops this year.

"Most of the corn crop was planted in a timely fashion and early growing season weather has been generally favorable," Good said. "Areas of excessive precipitation and areas of dryness do exist, but crop condition ratings have been high."

As of May 30, the USDA's weekly Crop Progress report showed 76 percent of the crop in the 18 largest corn-producing states in either good or excellent condition. The range was from 45 percent in Missouri to 92 percent in Minnesota. Crop condition ratings were expected to remain high in the report released on June 7, and more rain is expected in the Midwest this week.

According to Good, there is a tendency for early-season crop condition ratings for corn to exceed the ratings at the end of the season. The average end-of-season rating from 1986 through 2009 was 63 percent good or excellent. "While current ratings may not be maintained through the season, they underscore the good start to the 2010 crop. In addition to a large crop, the market is now expecting an early corn harvest this year," he said.

The start to the 2010 season for the U.S. soybean crop has not been quite as favorable as for corn, with both the planting pace and crop emergence as of May 30 very near the previous five year average. The completion of planting may be further delayed by more rain this week. The first complete set of crop condition ratings were scheduled for release on June 7. A relatively high percentage of the crop is likely in good or excellent condition. Last week, Iowa reported 71 percent of that crop in good or excellent condition. Since 1986, the end-of-season report has shown an average of only 56 percent of the U.S. crop in good or excellent condition.

"A recovery in crop prices will require a reversal in one or more of the major factors that are currently having a negative impact," Good said. "These include world economic or financial conditions, foreign crop production prospects, domestic demand, and U.S. crop prospects. Domestic corn demand could get a boost from an approval to increase mid-level ethanol blends from the current maximum of 10 percent. Such an increase would not be a surprise, however, and might result in only modest price support."

The other factor that began to attract attention last week was the recent end to the El Nino weather pattern and the Climate Prediction Center forecast of the possibility of a La Nina to develop over the next few months. "Based on previous occurrences of such transitions, some climatologists see increased chances of more adverse growing conditions in the Midwest in July and August," Good said.

"Some point to 1983 as an analog year. While there does not appear to be any near-term threats to crop development, summer weather prospects should continue to be monitored for any indication of a pattern shift."

Source: Darrel Good, 217-333-4716,

Tuesday, May 25, 2010

Corn Demand Improves

December 2010 corn futures traded to a high of $3.95 in mid-April, retreated to a low of $3.67 early last week, and then rallied back to $3.95. The current price is about $.40 above the contract low established in early September 2009 and about $.75 below the high reached in early June 2009. The contract high, reached in mid-2008,
is over $7.00.

According to University of Illinois agricultural economist Darrel Good, weakness in corn prices starting in mid-April primarily reflected supply considerations: generally favorable weather for planting, expectations that acreage could exceed March intentions, and expectations that the 2010 yield would be above trend value due to a majority of the crop being planted early.

"The current strength in corn prices reflects more favorable demand prospects," Good said. "There is a fair amount of optimism about corn demand in each of the three major categories of consumption."

Recent data confirm increasing production and consumption of ethanol. Expansion is being driven by extremely favorable ethanol blending margins. Wholesale gasoline prices have increased from about $2.00 per gallon in mid-February to over $2.40 now. During the same time period, ethanol prices have declined from about $1.75 per gallon to about $1.60 per gallon.

"The current spread between gasoline and ethanol prices results in a very high return to ethanol blending, even before the $.45 per gallon blender's tax credit. The price spread is large enough that E-85 prices could be competitive at the retail level. Favorable blending margins should continue to support demand for ethanol so that corn consumption for ethanol production during the 2009-10 corn marketing year could exceed the current USDA projection of 4.3 billion bushels.
There is ongoing concern about the 'blend wall' for ethanol if mid-level blends are limited to 10 percent, but that wall clearly has not been reached yet."

Good said the recent increase in hog and cattle prices has also triggered ideas that feed and residual use of corn during the current marketing year might exceed earlier expectations. However, even with a decline in the feed and residual use of sorghum and another summer of relatively low feeding rates for wheat, feed and residual use of corn above the current USDA projection appears unlikely.

"The low level of use during the first half of the year combined with declining hog and cattle numbers and expanding production of distillers' grains makes the current projection of 5.45 billion bushels look a little high. That projection is 200 million bushels above use during the 2008-09 marketing year."

Good added that the category of use is feed and residual, so that surprises can occur. The USDA's June 1 Grain Stocks report will shed more light on the rate of use.

According to Good, improving corn export prospects have provided most of the recent optimism about corn demand. The release of some corn from domestic reserves in China, along with the issuance of import licenses a few weeks ago, has been followed by some small purchases of U.S. corn. China has not imported significant quantities of corn since 2001-02, when it imported 40 million bushels. The last year of large imports was 1994-95 with 170 million bushels being imported.

"The magnitude of U.S. corn imports by China this year is very uncertain, but recent purchases come at a time when overall sales of U.S. corn have been increasing."

The USDA weekly reports indicate that new export sales averaged 50 million bushels per week for the four weeks ending April 22, compared to an average of 28 million per week in the previous 10 weeks.

"New sales need to average 38 million per week from now through August in order for sales to reach the USDA's 1.9 billion bushel export projection.".

Weekly shipments averaged 38.2 million bushels per week during the seven weeks ending April 29. To reach 1.9 billion for the year, shipments from now through August need to average about 38.8 million bushels per week.

"The tug of war between improving demand prospects and expectations for a large crop in 2010 will likely continue, resulting in a continued wide trading range for corn prices. Stronger demand, however, increases the importance of crop size. If improved demand is confirmed, there may be less downside price risk and an opportunity for a move back to recent highs if crop problems develop."

Source: Darrel Good, 217-333-4716,