Market Watch

October Pork Exports Set New Monthly Record

2012-12-12T10:42:00.004-08:00

U.S. pork exports set new monthly records in October, according to statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF), reaching 218,132 metric tons valued at $607 million. Export volume was 9 percent above last year and broke the previous monthly record of 217,080 mt set in November 2011. Export value exceeded $600 million for the first time, breaking the previous high ($597.85 million, also from November 2011) by 1.5 percent.

For January through October, U.S. pork exports were 3 percent ahead of last year’s record pace in volume (1.875 million mt) and 6 percent higher in value ($5.24 billion).

Beef exports also posted solid results in October, with export value ($496 million) increasing 10 percent over last year despite a 4 percent decline in volume (101,447 mt). This was consistent with this year’s January-October pattern, which has seen an 11 percent decline in volume (951,886 mt) compared to 2011 while export value ($4.6 billion) remained 2 percent ahead of last year’s record pace.

October pork exports accounted for 23 percent of muscle cut production and 27.4 percent when including variety meat. For January-October, these ratios were 23.6 percent and 27 percent, respectively. This was slightly higher than last year for muscle cuts (22.9 percent) and steady with last year’s percentage of total production exported. On a per-head-of-slaughter basis, October exports equated to $55.95 (compared to $57.93 in October 2011). For January through October, the per-head average increased 3.5 percent from a year ago to $56.14.

Several major pork export markets posted their best performances of the year in October, while others recorded their highest totals in several months. These included:

Mexico, with its best month since January 2012, took 56,282 mt valued at $108.5 million. This pushed the January-October totals to 499,724 mt (+16 percent from the same period last year) valued at $928.5 million (+12 percent).
Exports to Japan were the largest since March 2011, totaling 45,084 mt valued at $188.1 million. The January-October volume total was down 5 percent to 389,446 mt, but value was 4 percent ahead of last year’s record pace at $1.68 billion.

Russia posted its largest total since May 2010, with 13,278 mt valued at $38.9 million. This pushed the January-October results to 86,566 mt (+30 percent) valued at $247.6 million (+20 percent).

Exports to South Korea, below the record-setting totals of 2011 for most of this year, rebounded in October to 14,050 mt valued at just over $37 million – the best performance since March 2012. January-October totals remained well below last year (119,786 mt, -26 percent valued at $340 million, -19 percent), but these results still exceed corresponding 2010 levels by 73 percent. Korea’s domestic pork production was severely impacted by foot-and-mouth disease in 2011, boosting demand for imported pork. Production rebounded strongly in 2012, so a year-over-year decline in U.S. exports was anticipated.

Strong October totals were also recorded in Canada, Oceania, Central and South America and the ASEAN region. Export volume to China/Hong Kong was down 36 percent from last year’s record total, but posted the best performance since April 2012. Through October, exports to this region were still up 10 percent in value at $716.89 million, but volume was 3 percent behind last year at 352,125 mt.

Source: U.S. Meat Export Federation

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2012 Corn Yield Forecast Below Average

2012-09-01T19:00:00.002-07:00

Irrigated corn yield potential is predicted to be 2-8% below long-term average, while dryland yield potential in much of the Corn Belt will be moderately to severely reduced, falling 22-67% below normal.

To forecast potential production at 12 sites across the Corn Belt University of Nebraska–Lincoln crop experts used a "Hybrid-Maize model" to estimate end-of-season yield potential based on actual weather up to August 27, and historical long-term weather data to complete the season using data from each of the past 30 years.

Simulations were run for dryland corn in Iowa, Illinois, and South Dakota, and for both irrigated and dryland corn in Nebraska. Simulations were based on the typical planting date, hybrid relative maturity, plant population, and soil properties at each location.

The bottom line is that 2012 irrigated yields will be moderately lower than the long-term averages (2-8% below normal), while dryland corn yield potential in much of the Corn Belt will be moderately to severely reduced (22-67% below normal).

It is important to keep in mind that yields can be even lower at places where both prolonged drought and high temperature stress at pollination have occurred. Also, greater field-scale variability is being observed this year in irrigated fields due to the inability of some irrigation systems to keep up with crop water use demand, problems with pivot irrigation nozzles and uneven watering, and additional stresses from insects and diseases. Such problems can contribute to reduced yields at irrigated sites of more than the 2-8% simulated by the model.

Source: Cropwatch, University of Nebraska–Lincoln

Anticipating June Corn and Soybean Stock Estimates

2012-06-18T13:03:00.002-07:00

The USDA will release estimates of June 1 corn and soybean inventories on June 29. The level of those stocks will reveal the rate of consumption during the third quarter of the 2011-12 marketing year and the available supply for consumption during the fourth quarter.

According to University of Illinois agricultural economist Darrel Good, there is likely to be a wide range of expectations for the estimate.

"Based partially on the on-going record strong corn basis, we anticipate that feed and residual use of corn during the third quarter was larger than the estimate for last year's use. If so, June 1 stocks would be near 3.1 billion bushels and use for the year would be expected to exceed the current USDA projection of 4.55 billion
bushels.

"The June 1 stocks estimates take on a little more importance this year due to the relatively tight year-ending inventories projected for both corn and soybeans, even though more early-harvested corn is expected this year. The surprises in recent corn stocks estimates also add some drama to the upcoming report.

For corn, the estimate of June 1 stocks will reveal the level of feed and residual use during the previous quarter because weekly estimates of exports and domestic ethanol production provide on-going estimates of use in those categories. Based on
cumulative marketing year export inspections through May and Census Bureau export estimates through April, exports during the quarter were likely near 390 million bushels. Based on weekly and monthly estimates of ethanol production, total food and industrial uses of corn during the quarter may have been near 1.64 billion bushels.

For the entire 2011-12 marketing year, the USDA projects feed and residual use at 4.55 billion bushels, 243 million bushels less than use of a year ago.

"Implied use during the first half of the year was 247 million less than that of a year ago, with all of the decline occurring in the first quarter. If the USDA
forecast is correct, use during the last half of the current year should be about
equal to that of last year. Use during the final quarter of the year is expected to be relatively small due to the availability of more than the normal amount of new crop corn in August, and perhaps a little more summer wheat feeding than occurred last year."

So, what about third quarter use?

"On the surface, third quarter feed and residual use might be expected to be near that of last year. Total red meat and poultry production during the second quarter of the calendar year was about 1.5 percent less than during the same quarter last year, egg production was almost unchanged, and milk production was up about 6.5
percent. In addition, the production of distillers grains was about equal to
that of a year ago. However, implied use during the third (and fourth) quarter
last year was extremely small and there is less than complete confidence in the
accuracy of that estimate."

Good said that anticipating the June 1 stocks of soybeans is less difficult than for corn, but has been complicated by the discontinuation of the monthly Census Bureau estimate of the domestic crush. Quarterly crush estimates are now based on monthly estimates of crush by members of the National Oilseed Processors Association (NOPA). The USDA no longer reports domestic crush by quarter, but reports total domestic use that includes feed, seed, and residual use.

"Based on NOPA estimates for the March-May quarter, we estimate total domestic crush at about 425 million bushels, 7.3 percent more than crushed in the same
quarter last year."

Based on cumulative export inspections through May and Census Bureau estimates
through April, soybean exports during the third quarter of the year were near
257 million bushels. Consumption of soybeans for all purposes should have been near 722 million bushels, pointing to June 1 stocks near 650 million bushels.

Source: Darrel Good, 217-333-4716

Meat Reports

2012-04-16T09:28:00.002-07:00

New Meat report links added to Terminal Market Reports page.

Avg. Daily U.S. & Canadian Cattle Slaughter
Monthly US Beef Exports
Monthly U.S. Broiler Exports
Monthly US Pork Exports
National Base Hog Price

Pork Profit Outlook Trimmed

2012-04-09T16:10:00.002-07:00

With the breeding herd only 0.6 percent larger than a year ago, sow numbers stable, and the market herd reportedly 2 percent larger, the nation's pork producers are largely holding back on expansion even though the industry returned to profitability in the spring of 2011.

According to Purdue University Extension economist Chris Hurt, large financial losses in 2008 and 2009 and uncertainty associated with higher feed prices due to crop damage in South America may be some of the reasons for the reduced profit outlook for 2012.

"The current outlook is for profits of just $4 per head for 2012," Hurt said. "This compares with estimated profits of $14 per head last year. An early look toward 2013 suggests modest continued expansion of pork production with somewhat lower hog prices. Feed costs are expected to moderate to the down side with estimated total costs dropping to around $60 per live hundredweight compared with $63 in 2012.

"One thing is sure," Hurt said. "The U.S. pork industry's costs structure has changed significantly from around $40 during the $2.00-a-bushel corn era to closer to $60 per live hundredweight now."

Hurt said that cash hog prices and lean hog futures were negatively impacted by the media attention and consumer reactions surrounding lean finely textured beef.

"With that issue receiving less attention, hog prices should be set for a spring rally in the next six weeks," he said. "Over the past five years, for example, live hog prices have rallied an average of $11 per hundredweight into mid-May. A similar increase this year is expected and should take prices that are currently in the low $60s to the low $70s over coming weeks."

According to Hurt, prices are expected to average in the higher $60s for both the second and third quarters this year and then drop seasonally to near $60 in the last quarter of 2012 and first quarter of 2013. Prices for the spring and summer of 2013 are currently expected to be in the mid-$60s.

"Pork supplies in 2012 are expected to rise by about 2 percent, but demand is expected to absorb these modest increases," Hurt said. "Exports will remain an important component of that demand as USDA analysts expect export shipments to remain at record high levels. Domestic demand should remain strong due to population increases near 1 percent and to some consumers selecting pork as an alternative to high priced beef.

Source: Chris Hurt, Purdue University Extension economist, 765-494-4273,

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Corn Yield Prospects

2012-03-20T16:37:00.002-07:00

With 2011-12 marketing year-ending stocks of U.S. corn expected to be near pipeline levels, the size of the 2012 crop has substantial price implications. Acreage intentions will be revealed in the USDA's March 30 Prospective Plantings report, but much of the current discussion centers on prospects for the U.S. average corn yield.

Widely differing views of yield prospects for 2012 have emerged. A number of factors may contribute to the diverse views, but four have received a lot of attention. These include (1) the timing of planting, (2) the magnitude and potential change in the trend yield, (3) the expected summer weather conditions, and (4) the location and magnitude of acreage changes.

The mild winter weather and early spring fieldwork suggests that the 2012 crop will be planted in a very timely fashion. There is a general perception that early planting results in a higher U.S. average yield potential, all other things being equal.

Agronomic research in the Corn Belt reveals a slight yield penalty for extremely early planting (March), a wide planting window for maximum or near maximum yield potential (early to mid-April through early May), and a yield penalty for late planting that increases with the lateness of planting.

While there is a clear yield penalty for late planting, there is not a similar yield premium for early planting. The majority of the crop is planted in the optimum window in most years.

To have an effect on U.S. average yield potential, a substantially larger or smaller portion of the crop would have to be planted outside the optimum window. For 2012, a smaller-than-average percentage of the crop planted late might increase yield potential, but that impact would be quite small.

Widely varying opinions about the trend in U.S. average corn yields have emerged in recent years. The long-term increase in average yields is associated with the development and adoption of crop production technology and crop management practices. The nature of those developments has varied over time, but there has been a steady flow of yield-enhancing technology and practices.

For the most part, variation around the trend yield reflects variation in growing season weather, although events such as pest infestations or early occurrences of freezing temperatures can have a yield effect. Confusion about the yield impact of technology and weather can occur if there is a string of years with very favorable or unfavorable weather. In that case, the impact of weather can mistakenly be attributed to technology and give the impression that the underlying trend yield has
changed.

That appeared to have happened from 2003 through 2009 when generally favorable weather led some to believe that the underlying trend yield was increasing at a faster rate. The reverse may have occurred recently; poor weather in 2010 and 2011 resulted in low yields following the record yield of 2009. Overall, evidence suggests that the trend in U.S. average corn yields has been linear since
1960.

U.S. corn plantings are expected to increase by 2 to 3 million acres in 2012. It has been argued that the increase will occur in lower-yielding areas and therefore prove to be a drag on the U.S. average yield. The most logical expectation is for an average yield near the long-term trend. The trend yield for 2012 is just under 160 bushels per acre. The USDA's early forecast for 2012 is for a yield of 164 bushels.

With harvested acreage projected at 87 million acres, a 4 to 5 bushel difference in the U.S. average corn yield represents a difference of 350 to 435 million bushels in crop size. Prospects of an average yield near 160 bushels would suggest that new-crop corn prices are probably low enough, while prospects for a yield of 164 bushels or higher would likely push prices marginally lower.

Source: Darrel Good, University of Illinois agricultural economist
217-333-4716

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Profitable 2012 For Hog Market

2011-11-22T05:18:00.000-08:00

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

Trade Expecting Lower Corn Production In September Crop Report

2011-09-08T11:55:00.001-07:00

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

Markets Remain Tight As USDA Trims Corn, Soybean Production Estimates

2011-08-11T15:02:00.001-07:00

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

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Markets Reflect New and Missing Information

2011-05-31T15:55:00.000-07:00

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

Little Change for Corn and Soybeans

2011-03-18T16:54:00.000-07:00

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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Corn Consumption and Prices for 2011

2011-03-03T15:06:00.000-08:00

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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Cattle Market Falls Back

2011-01-24T09:15:00.001-08:00

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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Soybean and Corn Prices Should Direct Consumption and Acreage

2011-01-18T16:20:00.000-08:00

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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Cattle Prices Fall Back

2011-01-18T15:49:00.000-08:00

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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Grain Supplies Tighten

2011-01-11T06:59:00.001-08:00

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

Live Cattle Futures Rally

2011-01-02T14:05:00.001-08:00

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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Corn Prices Supported Growing Ethanol Production

2010-11-10T09:27:00.000-08:00

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, d-good@illinois.edu

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Market Watch: Cattle Markets

2010-10-21T19:26:00.000-07:00

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.

Sources:
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

Markets Whipsawed

2010-10-14T22:01:00.000-07:00

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

2010 Crop Production and World Agricultural Supply-Demand Estimate

2010-10-11T14:05:00.001-07:00

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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Corn Inventory Estimate Exceeds Expectations

2010-10-05T09:21:00.000-07:00

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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Corn Prices Ring An Alarm Bell for Hog Producers

2010-09-27T16:38:00.000-07:00

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

The Cattle Markets

2010-09-20T08:53:00.000-07:00

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.

Source:
Livestock Marketing Information Center

Market Looks Promising for Sale of Some 2011 Wheat Now

2010-09-12T12:46:00.001-07:00

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.

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

Farm Supply
Artwork: The Wheat Field by Vincent Van Gogh