Tuesday, November 22, 2011

Profitable 2012 For Hog Market

The pork industry is expected to have a profitable year in 2012. In fact, the level of profitability could be the most favorable during the high-priced feed era, according to Chris Hurt, a Purdue University agricultural economist.

"Profits in 2012 are currently forecast to be near $17 per head, which would be the highest since 2006. That was the last year of the low feed-price era when corn prices received by farmers averaged about $2.30 per bushel for the calendar year and estimated hog profits were $27 per head," he said.

Although a return to profitability is welcome news, there are deeper and more important implications.

"The first is that the pork industry, like most other animal industries, has made the adjustments necessary to live in a world of high-priced feed. The second is that the pork industry probably has turned the corner on high feed prices as we look to 2012 with abundant and cheap feed wheat, prospects for moderation in the rate of growth in corn use for ethanol, the potential for a larger South American soybean crop, and hope for a return to higher U.S. corn and soybean yields."

The pork industry had a difficult road making the transition to the high feed-price era, as did all animal industries. High feed prices and recession in 2008 and 2009 and H1N1, unfortunately termed swine flu, led to large losses in 2008 and 2009, estimated at $17 and $24 per head, respectively.

"These large financial losses resulted in some downsizing of the industry through discouragement and bankruptcy. As a result of downsizing and robust pork buying from foreign countries, the amount of pork available to U.S. consumers will drop from about 51 pounds per capita in 2007 to around 46 pounds in 2012. This 9 percent reduction of per capita supply has enabled retail pork prices to rise from $2.87 a pound in 2007 to $3.43 a pound in 2011, a 20 percent increase."

The large loss years of 2008 and 2009 ($17 and $24 per head) will finally be offset by the profitable years of 2010, 2011, and 2012 ($14, $10, and $17 per head). Hog producers would say this in a different way: It has taken three years just to get back the money lost in in the two bad years when feed prices surged.

"Another way to look at this is to say that the pork industry has adjusted to $7-a-bushel corn such that they can break even if cash corn prices stay at that level and make money if prices are below $7. The current prospect for cash corn prices to be in the lower $6.00 area is a primary reason for the profit opportunity in 2012."

Are feed prices now moving into their post-peak period? No one can know the answer with much confidence, but the declining prices of corn and soybean meal since August will have many debating that issue. There clearly are fundamental reasons to believe that could be the case, as we have just itemized, he said.

The post-peak price feed period would be expected to be one of both lower feed prices and less volatile prices. These are conditions that would favor expansion of animal production, including the pork industry.

"Of course, pork producers do not quickly forget $7 and $8 corn prices and should be cautious in quickly expanding herds. Perhaps the best and most logical advice is for them to use the expected profitability in coming months to enhance their financial positions and to wait and see how the 2012 U.S. crops evolve before moving toward expansion in late 2012."

Source:
Chris Hurt, 765-494-4273, hurtc@purdue.edu

Thursday, September 8, 2011

Trade Expecting Lower Corn Production In September Crop Report

Commodity market analysts expect lower U.S.corn and soybean production estimates in next week's crop production report from the Department of Agriculture. Ohio State University agricultural economist Matt Roberts says that could lead to marketing opportunities for farmers.

"The market is really most interested in new information on yields. Since the August report came out, six or seven major
marketing services gave their own yield forecasts, and they've been all over the place."

Roberts said those private estimates ranged from as low as 143
bushels per acre for corn yield to as high as 152 bushels per acre. A yield estimate from USDA near or outside one of those extremes would likely lead to aggressive action in the corn market.

Specifically, Roberts said, the market consensus is a corn price based on a yield below 151 bushels per acre nationally, and anything above that mark will spark a significant selloff.

"A lot of the private analytical scuttlebutt centers on the
Eastern Corn Belt, and how things fared in August. ProFarmer, for example, came out with significantly lower estimates for Illinois, Indiana, and Ohio."

Because of the lateness of planting in states like Ohio, very few harvest reports are available yet from major corn producing states, and Roberts said the few areas of the country already shelling corn are reporting widely varied yields.

USDA will release its August estimate of crop yields, as
well as updated supply and demand estimates, Monday, Sept. 12.

Source:
Ohio State University Extension
Matt Roberts
614-688-8686

Thursday, August 11, 2011

Markets Remain Tight As USDA Trims Corn, Soybean Production Estimates

An already tight grain and oilseed market got even tighter today as the U.S. Department of Agriculture's National Agricultural Statistics Service (NASS) released its August crop production and supply and demand estimates.

USDA revised its estimate of corn yield to 153 bushels per acre, down from a forecast of 158.7 bushels released in the July report. It said the figure would still mark the fourth highest yield on record, with a total forecasted production of 12.9 billion bushels, up 4 percent from 2010's final production.

"It was a very aggressive revision in corn yield," said Ohio State University Extension economist Matt Roberts.

Hot, dry weather played a significant role in developing a crop now presumed to be much smaller than market analysts had anticipated. The average of pre-report private estimates for corn yield was 155 bushels per acre.

As corn production tightens, prices are expected to rise and, accordingly, consumption potentially curtailed.

"Obviously with that cut we have to see demand-side rationing," Roberts said. "NASS projects feed use will be rationed by another 150 million bushels, ethanol use by 50 million, and exports by 150 million."

While Roberts said reductions in feed and export usage seem reasonable, he did not see enough rationing to cut corn used for ethanol by the same magnitude as the USDA figure.

"There is not an indication that margins will actually fall that much right now, so it's not clear how that rationing will occur. However, there is a reality that at these sorts of price levels we're in uncharted territory."

The corn market opened limit up following the report's release, reacting to the 550-million-bushel cut in the production estimate and 156-million-bushel drop in projected ending stocks.

Soybeans, meanwhile, saw USDA trim its estimate of yield to 41.4 bushels per acre, down from the July projection of 43.4 bushels. That pegged total production at 3.06 billion bushels.

"That's roughly 60 million below the bottom end of pre-report expectations. Soybeans look relatively tight, but compared to corn we're not seeing nearly the same tightness in the market. USDA forecast a reduction in exports and a small reduction in crush, but most of the change will be in exports."

USDA forecast a midpoint soybean price of $13.50 per bushel, up from $13 last month. It forecast a midpoint corn price of $6.70 per bushel.

Evaluating the numbers, Roberts said the key takeaway for farmers from the August report is the importance of watching margins in livestock production.

"What it means is the summer of 2012 will look very similar to the summer of 2011. There will be concern about feed availability because stocks will be very tight, and in some areas we'll see very high basis. You've got to watch margins if you're a feeder. Luckily meat prices have been relatively strong in recent months, but you have to watch and be careful about buying grain and not protecting your fed-animal price. You're in a margin business, and it's always dangerous to lock in one leg without locking in the other."

Source:
Ohio State University's College of Food, Agricultural, and Environmental Sciences
Matthew C. Roberts
(614) 688-8686

Tuesday, May 31, 2011

Markets Reflect New and Missing Information

Prices of corn, soybeans and wheat continue to move erratically, reflecting both new information and the lack of some information, according to University of Illinois agricultural economist Darrel Good:

"The markets are supplied with a steady flow of data on consumption in some markets, particularly the export markets and the ethanol market. Less frequent information is available about consumption in other markets, particularly the domestic feed market."

For corn, the available data point to a continuation of a high rate of domestic consumption and a slow pace of export shipments.

For soybeans, weekly export inspections have dropped below the level needed to reach the USDA projection of 1.55 billion bushels for the year ending on August 31. Inspections for the four weeks ended May 26 averaged 8 million bushels per week, compared to the 11.5 million average needed to reach the USDA projection.

"The domestic soybean crush pace continues to be slow with the reported April crush at the lowest level for the month since 2004."

For wheat, exports appear to be on pace to reach the USDA's projection of 1.275 billion bushels for the marketing year that ends today. Beyond the consumption data, longer-term demand prospects continue to be influenced by varying indicators and opinions about prospects for economic recoveryd.

"On the supply side, there is a constant flow of information about planting progress, world weather conditions, and crop conditions. That information does not always paint a consistent picture and the implications are subject to interpretation by market participants."

Outside the United States, there are ongoing concerns about the impact of dry weather on western European grain and oilseed crops and concerns about planting delays for Canadian grain and oilseed crops. In contrast, prospects are generally more favorable in China, India and the Black Sea region.

"The focus on the supply side right now, however, is primarily on conditions in the United States. Those conditions are highly variable and are highlighted by planting delays in the northern Plains, the upper Midwest, and the eastern Corn Belt."

In contrast, planting has been timelier in large parts of the western Corn Belt. Dry conditions in the southern Plains have posed an ongoing threat to the winter wheat crop, while flooding has resulted in the loss of some crop land along the southern Mississippi River.

The USDA will continue to provide weekly data relative to planting progress, crop development progress, and crop conditions. Information relative to total planted acreage and acreage planted to individual crops is the scarcest.

"Considerable uncertainty about the magnitude of acreage of spring-planted crops will persist for at least another month. Uncertainty about total planted acreage is magnified by the difficulty in estimating the amount of acreage that has been lost for the year due to flooding."

In addition, it is difficult to evaluate how many acres, particularly of corn, will be lost to the prevented planting provisions of the crop insurance program. Several million acres were likely still not planted as of May 29.

"In addition to uncertainty about total planted acreage, the mix of crop acreage is also difficult to anticipate, with some intended corn acreage likely shifting to soybeans after the first week of June."

Upcoming USDA reports will provide some of the currently missing information for the crop markets. The June 9 Crop Production report will provide a new forecast of the size of the U.S. winter wheat crop. Updated forecasts of U.S. and world supply and consumption prospects will be released on the same date.

"We do not anticipate any changes in the projections for the 2010-11 or 2011-12 marketing years for U.S. corn. There is some chance of a small reduction in the projection of U.S. soybean consumption for the current marketing year. For wheat, changes for the 2011-12 marketing year will follow the new winter wheat production forecast."

The USDA's June 30 Grain Stocks and Acreage reports will provide the most important fundamental information for all three crops.

Consumption data and a strengthening basis suggest that corn inventories are getting increasingly tight. The report of planted acreage may show some significant loss of total planted acreage relative to March intentions.

"The largest decline is expected for corn acreage. While crop prices are high and have strengthened since mid-May, the response seems muted given the magnitude of production risk in the United States and other parts of the world. This is particularly true for corn."

Good said it's surprising that prices for the 2011 corn crop have not strengthened even more in an attempt to make corn planting as attractive as possible compared to planting other crops or leaving acreage idle.

Source: Darrel Good, 217-333-4716, email
University of Illinois College of Agricultural, Consumer and Environmental Sciences

Friday, March 18, 2011

Little Change for Corn and Soybeans

USDA released an update of its World Ag. Supply and Demand Estimates report March 10, but the update changed little in the corn and soybean outlook.

Corn estimates were unchanged, with 2010/11 ending stocks projected at 675 million bushels and the midpoint of the season-average price range at $5.40 per bushel.

Soybeans had a small adjustment to seed demand that was offset by a reduction in residual demand. So 2010/11 ending stocks remain at 140 million bushels, but the midpoint of the season-average price was lowered to $11.60 per bushel.

Wheat 2010/11 ending stocks rose 25 million bushels, based on a reduced export outlook. This could open up more wheat in domestic feed channels to compete with corn.

Looking at the world situation, corn production in 2010/11 was reduced by 0.5 million metric tons with the bigger shifts coming from Mexico (down 2 million tons) and Brazil (up 2 million tons). Corn exports to the European Union and Mexico for the 2010/11 crop year are projected to increase by 2.1 million tons.

World soybean production was increased by 2.3 million metric tons, with the bulk of that increase coming from Brazil (up 1.5 million tons) and China (up 0.8 million tons). Argentine production was held steady, but Argentine exports were lowered by 0.6 million tons.

Source: Chad Hart , ISU Extension Grain Marketing Specialist. Ag Decision Maker

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Artwork: Corn and Soybean Fields on a Landscape, Herscher, Illinois

Thursday, March 3, 2011

Corn Consumption and Prices for 2011

With corn production down and corn consumption up, the market is poised to see record-high prices per bushel in the 2010-11 marketing year, according to a marketing and outlook brief prepared by University of Illinois agricultural economists Darrel Good and Scott Irwin.

"We looked at the current situation in which we're expecting very tight year-ending stocks and developed three supply, consumption, and price scenarios for the 2011-12 marketing year," Good said. "The yield alternatives include a trend yield, an average yield resulting from good weather, and an average yield resulting from poor weather. We followed those scenarios through a balance sheet and into a price projection under each of those three scenarios, just to underscore how important crop size is to next year's average price."

In one scenario, Good and Irwin calculated a trend yield based on actual U.S. yields since 1960 at 158 bushels for 2011. This was applied to an expected 92 million acres planted.

"This is a speculation based on where the market is centering on its expectation about acreage response this year," Good said.

In the second scenario, they looked at the historic yields since 1960 and converting those yields into 2011 equivalents, that is, they added the trend back into the actual yields and then calculated the average yield for the 10 lowest-yielding years since 1960.

"That calculates to be 147 bushels per acre, in terms of 2011 technology," Good said.

"Then we looked at the 10 highest-yielding years and calculated the average, which was 169 bushels in today's technology. With those calculations, we asked, what if we have those three alternative-yield scenarios? What does that imply for the balance sheet and the price of corn next year?"

The summary concludes in the trend yield scenario that the market would not be able to begin to rebuild inventories next year, the year-ending stocks would remain at 675 million bushels and corn prices would average relatively high, near $5.75 per bushel. This is compared with the expectation of $5.40 for the current year.

"Under the good-weather scenario, we would see a big crop of over 14 billion bushels." Good explained that this scenario would suggest there would be room to expand consumption and build the year-ending stocks to 8 or 9 percent of consumption.

"We believe that would result in a season's average price slightly under $5 per bushel, with our projection at $4.75 as next year's average price," he said.

Under the poor-weather scenario, Irwin and Good see two outcomes.

"First, consumption would have to be restricted considerably,primarily in the livestock sector," Good said. "The year-ending stocks would be reduced to an absolute minimum level -- we think about 5 percent of annual use, or about 625 million bushels."

Good said that with high livestock prices average corn prices would be very high during the 2011-12 marketing year--about $7 for the year, recognizing that at points during the year prices could be substantially higher.

He noted that trend yield can be calculated differently, using different time periods.

"Most people use a shorter time period than we do and get a trend yield that's maybe 3 bushels higher than the 158 that we use," Good said.

"Still, the three scenarios would unfold very similarly to what we've outlined here.

"The most troublesome scenario for 2011 would be a short crop that resulted in extremely high prices," Good added.

"That is the scenario that might require some policy adjustments that policy makers should be thinking about now."

Source: Alternative 2011 Corn Production Consumption and Price Scenarios by Darrel Good and Scott Irwin.

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Artwork: Corn Harvest by Diego Rivera

Monday, January 24, 2011

Cattle Market Falls Back

After a couple weeks of higher holiday trade, fed cattle prices settled back last week.

The 5-Area slaughter steer price averaged $105.46/cwt on a live weight basis, $0.82/cwt lower than the previous week. Dressed prices were down about $1/cwt as well. Choice boxed beef gained nearly $4/cwt last week to average $165.81/cwt. Feeder cattle volume picked up significantly in the first full week of the year.

While price comparisons to the previous week weren’t available in several markets, generally higher prices were noted. The price for yearlings in Nebraska averaged almost $3/cwt higher, while 500-600 lb calves were more than $10/cwt higher. Through Thursday of last week, corn prices were $0.14/bu lower, basis Omaha, NE. Prices for DDGS and WDGS were up another $2-4/ton last week in Nebraska.

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

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Tuesday, January 18, 2011

Soybean and Corn Prices Should Direct Consumption and Acreage

Over the next three months, the prices of corn and soybeans have two major objectives. First, prices must allocate remaining old crop supplies to maintain at least pipeline stocks by the end of the current marketing year. Second, prices must direct spring planting decisions, according to Darrel Good, a University of Illinois agricultural economist.

For soybeans, the USDA now projects that the combined total of domestic crush and exports during the current marketing year will reach 3.245 billion bushels. That is only 8 million bushels, or 0.25 percent, less than the total of last year.

At the projected level of use, year-ending stocks would total only 140 million bushels, or 4.2 percent of total use that includes seed, feed, and residual uses. Year-ending stocks cannot be reduced much below 140 million bushels and still maintain pipeline supplies so total use cannot exceed current projections by a substantial amount.

During the first quarter of the current marketing year, soybean crush and exports totaled 1.063 billion bushels, 82 million (8.4 percent) more than during the first quarter last year. Use during the remainder of the year then will be limited to about 2.182 billion bushels, which is 90 million bushels (4 percent) less than use during the same period last year.

The pace of consumption clearly needs to decline, and that decline has been occurring. The National Oilseed Processor Association estimates the December 2010 crush by their members was 11.5 percent below that of December 2009. If the national crush was down 10 percent, the December 2010 crush was 17 million less than in December 2009.

Based on weekly export inspection figures, U.S. soybean exports from Dec. 1, 2010, through Jan. 6, 2011 were 40 million bushels less than that of a year ago. The total of crush and exports since Dec. 1, 2011, was 57 million bushels, or nearly 14 percent, less than the total of a year agod.

Soybean consumption has slowed much more than the approximately 4 percent needed to ration current supplies. Consumption for the rest of the year needs to be only 33 million less than that of a year ago.

For corn, the USDA now projects 2010-11 marketing year consumption at 13.43 billion bushels. That is 364 million bushels, or 2.8 percent, more than consumed last year.

At the projected level of consumption, year-ending stocks will total only 745 million bushels, or 5.5 percent, of consumption. Stocks cannot be reduced much below that level and still maintain pipeline supplies, so total consumption cannot substantially exceed the current projection.

During the first quarter of the marketing year, corn consumption totaled 4.117 billion bushels. That is 253 million bushels, or 6.5 percent, more than consumed in the same quarter a year earlier. Use during the remainder of the year will be limited to about 9.313 billion bushels, which is only 111 million bushels, or 1.2 percent, more than consumed during the same period last year.

Corn exports from Dec. 1 through Jan. 6 were 21 million bushels (15.4 percent) larger than during the same period last year. Ethanol use of corn was 55 million bushels (11.6 percent) larger than during the same period a year ago. Total non-feed use of corn since Dec. 1 was 76 million bushels (13.6 percent) more than use of a year earlier.

Depending on the rate of feed and residual use since Dec. 1, it appears that total corn consumption during the rest of the year can exceed that of a year earlier by only about 35 million bushels.

It appears that soybean prices have increased enough to ration current supplies, but corn prices have not, although the demand for U.S. corn and soybeans will still be influenced by the outcome of South American production. It appears that the Argentine corn crop, and perhaps the soybean crop, could be smaller than the current USDA forecast, further increasing the export demand for both crops.

The prospect for both very tight year-ending stocks of corn and soybeans and a continuation of strong demand implies that 2011 crops need to be large. More U.S. acreage of both crops may be needed to meet projected consumption levels at reasonable prices and to start rebuilding domestic stocks to a more acceptable level.

Good said that planted acreage of all crops in the United States declined by 8.3 million acres from 2008 to 2010. At the same time, acreage enrolled in the Conservation Reserve Program declined by 3.4 million acres.

These changes suggest that as much as 11.7 million acres of additional crop land (including double-cropped acres) may be available for planting in 2011. Of that total, 3.7 million has already been planted to winter wheat. Double-cropped acreage of soybeans following wheat harvest could increase by 2 million acres, following a similar decline last year. That leaves 6 million acres for additional acreage of spring planted crops in 2011.

Soybeans may not require any of that acreage due to increased double cropping. Assuming that corn consumption remains near the 13.4 million bushel level next year, that year-ending stocks need to expand by at least 500 million bushels next year, and that the 2011 average corn yield is near the trend of 159 bushels, most of that 6 million acres should be planted to corn.

Based on the need to reduce the pace of consumption and to aggressively expand acreage, corn prices likely need to remain high in absolute terms and relative to other crop prices for an extended period.

Source: Darrel Good, 217-333-4716; d-good@illinois.edu

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Artwork: Soybeans in a Field in Nebraska

Cattle Prices Fall Back

After a couple weeks of higher holiday trade, fed cattle prices settled back last week.

The 5-Area slaughter steer price averaged $105.46/cwt on a live weight basis, $0.82/cwt lower than the previous week. Dressed prices were down about $1/cwt as well.

Choice boxed beef gained nearly $4/cwt last week to average $165.81/cwt.

Feeder cattle volume picked up significantly in the first full week of the year.

While price comparisons to the previous week weren’t available in several markets, generally higher prices were noted. The price for yearlings in Nebraska averaged almost $3/cwt higher, while 500-600 lb calves were more than $10/cwt higher.

Through Thursday of last week, corn prices were $0.14/bu lower, basis Omaha, NE.

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

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Artwork: Winter Save by David Stoecklein

Tuesday, January 11, 2011

Grain Supplies Tighten

World coarse grain ending stocks in 2010/11 are projected to decline 18% from the levels of the previous marketing year.

World grain prices are likely to continue to be supported in 2010/11 by a combination of supply-demand factors, including…

Continued growth in World usage combined with at least moderately tighter ending stocks-to-use in 2010/11 for coarse grains, wheat and oilseeds

Anticipation of strong competition for U.S. crop acreage in the spring of 2011 between corn, soybeans and other crops·

Tightening World supplies of food quality wheat following 2010 harvest problems in the Black Sea region, eastern Australia and Canada – with subsequent competition to purchase remaining food quality wheat supplies from the United States and elsewhere for the remainder of 2010/11·

Source: Kansas State University Department of Agricultural Economics

Sunday, January 2, 2011

Live Cattle Futures Rally

Last week, February 2011 Live Cattle futures rallied more than $3/cwt, led by fund buying in the middle of the week.

On Wednesday, nearby futures gained $1.75/cwt, which helped spurred sharply higher cash trade in the middle of the week. Active trade began on Wednesday at $163-164/cwt (dressed) or $103/cwt (live) in Nebraska. Trade in the Southern Plains also developed on Wednesday, with Kansas sales averaging $102-103/cwt, and Texas $103-104/cwt.

Despite active trade volume on Wednesday, prices continued higher on Thursday. For the week, live sales in the 5-area market average $102.51/cwt, up $2.83 from the previous week. Dressed prices averaged $4.51/cwt higher at $163.68/cwt. Choice boxed beef averaged $3.33/cwt lower last week and the spread between the Choice and Select cutouts decreased $3.52/cwt.

In a holiday-shortened week for feeder cattle sales, stronger undertones were noted where sales were reported. In Nebraska, steer calf prices advanced more than $7/cwt last week, and yearling steer prices increased $2/cwt. Feeder cattle buyers continued to bid higher for the shortening supply of feeder cattle despite higher feedstuff prices.

For the week, corn prices were $0.21/bu higher, basis Omaha, NE. Prices for DDGS and WDGS were also up $8.80/ton and $3.10/ton, respectively, in Nebraska by the end of last week.

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