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Corn prices to remain high through 2011

Corn prices to remain high through 2011

Corn futures jumped 58 percent in just 10 weeks from a 9-month low of $3.25 per bushel June 29 to a 2-year high of $5.13 Sept. 17. 


Higher corn prices are dangerous because, as a major feedstock and input cost, they discourage producers from expanding flocks/herds due to higher operating costs. Thus, they have the potential to drive prices higher for poultry, pork, beef and dairy in 2011. 


In September, the USDA revised downward estimates of corn acreage, yield per acre and corn ending stocks. USDA cut its 2010-11 U.S. corn crop forecast by 2 percent to 13.16 billion bushels. 


Corn ending stocks will drop to 1.12 billion bushels, down 19.5 percent from a year ago. Yield was cut by 3 percent from 165 bushels to 160 bushels per acre, and a number of private analysts believe it to be lower. The world stocks-to-use ratio, currently at 15.5 percent, could drop below 15 percent — not far off the 2006-07 record low of 14.3 percent.


The USDA in September raised its 2010-11 corn forecast by 16 percent from $3.80 to a record-high $4.40 per bushel. Year-to-date, near futures prices have averaged $3.77 per bushel. With the fourth quarter looking to be in the $5 range, that would put the 2010 average at roughly $4 for the year. That compares with the record-high $5.27 per-bushel average for the year in 2008.


Beef

The September USDA cattle report showed 10.17 million heads on feedlots, up 2.8 percent from a year ago and a little more than expected. New placements onto feedlots in August were up 7.1 percent. Placement weights were skewed toward the highest — 700 and 800 pound — categories, indicating that, with corn prices higher, larger numbers of cattle are being held on pasture for as long as possible. Placements from May through August are averaging 10 percent above last year and point to larger cattle/beef supplies through the fall.


Steak prices were stronger than expected in August, but following a pre-Labor Day peak, most cuts are headed toward seasonal November market bottoms. Holiday buyers should look for late-September, early-October market bottoms in rib-eye and tenderloin. Chucks and rounds will drift toward a November bottom before recovering for winter. Seasonally increasing beef cow slaughter will boost lean beef output through year’s end. Domestic 90s trimmings could drop 25 cents per pound by November. Higher cattle carcass weights will help beef 50s fat trimmings hold steady through the fourth quarter.


Coffee

Futures prices are at 13-year highs in the $1.90 range. Two consecutive seasons of poor harvests in Colombia and Central America and the sharp decline in certified coffee stocks available for delivery against futures contracts have squeezed the supply side of the market. Last year’s Colombia output was down 30 percent due to adverse weather that also reduced Central American supplies. Brazil is on pace to harvest a record crop this year, but most growing regions haven’t seen significant rain for more than three months, and quality has deteriorated. This year’s Colombia crop won’t hit the market until late November. Meanwhile, high-quality Arabica beans remain in short supply.


Dairy

Prices soared this summer. Chicago Mercantile Exchange, or CME, block cheese averaged below $1.40 per pound in June, jumped to $1.55 for July and averaged $1.64 in August. Block was $1.73 Sept. 17 versus $1.30 a year ago. CME butter surged from an average of $1.64 per pound in June to $1.78 in July to $1.99 in August. Butter was $2.22 Sept. 17 versus $1.20 a year ago. Fundamentals remain bullish. Dairy supplies are tight, and producers are drawing from inventory. In its September World Supply & Demand Estimate, the USDA increased its milk, butter and cheese price forecasts for both 2010 and 2011. Block cheese, which was $1.30 in 2009, looks to average $1.54 in 2010 and $1.58 in 2011. Butter, which was $1.21 in 2009, will soar to $1.71 for 2010 and $1.55 in 2011. 


Pork

According to the USDA, hog/pork prices likely will continue to be supported by lower supplies, solid domestic demand and rebounding exports. Third-quarter pork production at 5.4 billion pounds is 5 percent below a year ago, and fourth-quarter output looks to be down 2 percent. In the first eight months of the year, U.S. consumer demand has driven year-to-date pork belly prices to 49 percent above 2009 and loin prices 27 percent higher. Exports are running 10 percent above a year ago, and a large flow of hams to Mexico has pushed year-to-date ham prices to 68 percent above 2009 levels. USDA slightly increased its forecast for 2010 pork output but lowered its expectations for 2011. 


Poultry

Summer heat hit flocks hard. The number of birds slaughtered in July was down 2.9 percent compared with a year ago, and broiler production dropped 2.3 percent. As a result, 2010 broiler output was lowered to 2.4 percent above 2009 levels. Pressured by high pork and beef prices, USDA boneless skinless breast prices have been higher than expected — in the $1.60-$1.70 per-pound range for most of August, and at a pre-Labor Day, six-year high of $1.81. Look for prices to average near $1.40 for the fourth quarter. The USDA whole-wing market in the mid-$1.20s should trade in the $1.30-$1.40 range through year’s end. Leg quarters at 42 cents look to fade into the upper 30s by year’s end. 


2010 projected broiler prices at $84 per hundredweight are up 8.3 percent from $77.60 in 2009. Prices look to be roughly 2 percent higher in 2011. Whole frozen tom turkey prices are forecast to average $89 per hundredweight in 2010, up 16.3 percent from $76.50 in 2009. 2011 prices will remain elevated. NY large-shell eggs, forecast to average $1.02 per dozen in 2010, are actually down 1 percent from $1.03 in 2009. Prices in 2011 are projected to recover to $1.07, up 5.3 percent.


Soybean Oil

U.S. soybean oil trade has been robust as exports by Brazil and Argentina, the two main competitors, have sagged. Brazil’s exports of soybean oil have slowed this year as more is being consumed domestically for biodiesel. Argentina has had an ongoing trade issue with China that has allowed U.S. exporters to step in and pick up a portion of that business. As a result, USDA raised its export forecast for 2009-10 by 100 million pounds to 3.35 billion. Soy oil futures hit an annual high of about 42 cents per pound Sept. 17. Fundamentals remain strong. Vegetable oil consumption is projected to increase 4.5 percent in 2010-11, led by increased demand from China and India.

Corn futures up 58% from $3.25 per bushel in June to $5.13 in September.


2010-11 corn crop forecast cut 2% to 13.16 billion bushels.



USDA raised 2010-11 corn price forecast from $3.80 to $4.40 per bushel.

John T. Barone is president of Market Vision Inc. in Fairfield, N.J., and can be reached for comment at [email protected].

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