The big news in the May and June U.S. Department of Agriculture World Supply & Demand reports were the sharp increases in estimated hog and cattle prices for 2010 — and the USDA’s first look at 2011. USDA bumped projected 2010 choice steer prices from $91 to $94 per hundredweight, or cwt, and forecast 2011 at $98.50 — both numbers up sharply from an average of $83.25 per cwt in 2009. Similarly, hog prices for 2010 were raised from $51.50 to $55.50 per cwt, and 2011 prices were projected at $55 — also a big jump from $41.24 per cwt in 2009. Also of note: Gains in global rice output and supplies have led USDA to forecast rough rice at $14.15 per cwt for 2009-10 and $11.45 in 2010-11. That compares with $16.80 per cwt in 2008-09. To see all of the USDA’s long range projections for 2011, log on to: www.mktvsn.com/
resources/forecast-report.


• 2010 hog prices are at $55.50 per cwt, compared with $41.24 in 2009

• Ham market prices are near 80 cents per pound, 30 cents more than a year ago

• Pork bellies finished May at $1.25 per pound, 45 cents higher than a year ago


Beef


The May USDA cattle report showed 10.45 million head on feed, down 3.4 percent from a year ago and less than expected. April marketings fell 0.9 percent from last year, following three consecutive monthly gains. New feedlot placements in April were up 1.8 percent, following a 2.7-percent gain last month. For beef prices, it has turned out to be the spring we feared since the recession began. Namely, recovering demand has bumped up against reduced supplies and sent prices soaring. Net beef supplies, or output plus imports minus exports, has been running about 4 percent below a year ago and, combined with a seasonal spring uptick in demand, has led to some of the highest beef prices in two years. 


Sky-high beef prices are finally topping out seasonally. Supplies are beginning to increase, and demand will taper off by July. But summer price lows may only be temporary. In May’s Livestock Outlook, USDA said that global demand and herd rebuilding will keep cattle supplies tight through 2011. Beef production is forecasted to decline by 1.8 percent in 2010 and by another 1.5 percent in 2011. Even as steak prices decline seasonally, ground beef prices remain high. First-quarter beef imports from Australia and New Zealand — a big source of “90s” or lean processing beef — were down 41 percent and 18 percent, respectively, from a year ago. 


Coffee


Coffee futures traded in a relatively tight mid-$1.30s range for six weeks before spiking up to $1.45 on June 11. In May, the USDA estimated Brazil’s upcoming coffee crop at 55.3 million bags, up from 44.8 million a year ago. But before that crop hits market, tight current supplies are preventing prices from falling, and differentials, or premiums, over traded futures prices for higher-quality Colombian and Central American beans remains high. Seasonally, coffee futures tend to rise ahead of the Brazilian winter. Coffee futures are likely to trade in the $1.35-to-$1.45 range through July, and then lower by mid-August assuming there is no winter freeze damage in Brazil. 


Dairy


According to the USDA, poor returns for producers in 2008 and 2009 will result in continued reductions in cow numbers this year and next. However, increased milk per cow is expected to more than offset smaller herd size. Total U.S. milk production in April was at an all-time high of 16.4 billion pounds, an increase of 1.5 percent from a year ago. Total milk output looks to jump by roughly 0.6 percent 
for the year in 2010 and rise 
another 1.4 percent in 2011.


Seasonally, milk output will peak in June and weight on dairy product prices. In May, the block cheddar cheese market worked its way from $1.38 up to $1.50 per pound before falling back into the upper $1.30s in early June. Cheese supplies are ample, and further price weakness is likely before prices move up for the second half of 2010. Cheese prices are forecast to trend higher both this year and next, averaging $1.51 per pound in 2010 and $1.57 in 2011 — both up sharply from $1.30 in 2009. Butter prices are firm in the $1.60 range. U.S. butter is competitive in world markets, which will likely support prices through summer. Butter prices are projected to average sharply higher this year at $1.51 per pound, compared with $1.21 in 2009, and remain high near $1.46 in 2011.


Grain


Corn futures, which were as high as $4.32 per bushel in January, dipped down to $3.35 in early June and remain in the $3.50 range despite a very bullish USDA crop report. The USDA sharply reduced season-ending supplies because of a projected increase in corn for ethanol usage. Even so, this year’s planting is well ahead of schedule and, barring any weather issues, prices are more likely to head lower than higher. The season-average farm price for 2010-11 is projected to hold at $3.60 per bushel, the same as in 2009-10. World corn-ending stocks for 2010-11 are projected up 4.9 percent from 2009-10, their highest level since 2000-01. 


Wheat futures fell from $4.90 per bushel in early May to $4.40 in early June. Beginning stocks to start the 2010-11 season will be up 45 percent from 2009-10 and the highest in a decade — more than offsetting a forecasted 8-percent reduction in this year’s crop. The season-average farm price for wheat is projected at $4.40 per bushel, down from $4.90 in 2009-10. Global 2010-11 wheat production is projected at 668.5 million tons, down 1.5 percent from 2009-10 but still the third largest crop on record.


Pork


Pork production is now expected to decline by 3.8 percent in 2010 but rebound by 2.6 percent in 2011, as sharply higher hog prices induce producers to expand output. Hog prices, projected at $56 per hundredweight in 2010, will be up roughly 36 percent from 2009. High U.S. pork prices have slowed exports. First-quarter sales to Japan and South Korea were down a combined 15 percent, compared with the first quarter of 2009. An increase in exports to Mexico and Canada has partially offset Asian losses. Also, China supposedly ended its ban on U.S. pork effective May 1, which should help exports for the balance of the year. Growing global demand for proteins will help push U.S. pork exports from 4.13 billion pounds in 2009 to 4.33 billion in 2010 and 4.55 billion in 2011.


Ham market prices remain sky-high near 80 cents per pound, roughly 30 cents above a year ago. Prices look to hold near 80 cents through summer. Pork bellies finished May at $1.25 per pound. That was 45 cents higher than a year ago. Look for bellies in the $1.15-to-$1.25 range through July and a bit lower in August.


Poultry


Chicken is now a big value compared with beef and pork. Broiler producers responded by increasing first-quarter output by 1.8 percent over last year. That increase follows five consecutive quarters of year-over-year declines. A 1.5-percent jump in chicks placed for April and May, combined with higher bird weights, points to second-quarter output increasing by 3 percent or more, versus the second quarter of 2009. USDA projects 2010 broiler production at 36.4 billion pounds, up 
2.5 percent from 2009, and at 37.5 billion pounds in 2011. 


In the first quarter, exports fell 15 percent from a year ago, with trade disputes resulting in a 79-percent plunge in shipments to Russia and a 77-percent decline in shipments to China. These big declines were partially offset by larger sales to Mexico, Canada, Hong Kong, Taiwan and Korea. Higher output combined with a drop in exports is helping take the edge off of poultry prices. Boneless skinless breast has probably already peaked seasonally in the upper $1.60s per pound and looks to be in the mid-$1.50s from mid-June through July, and lower in August. The USDA whole-wing market probably was at or near an annual low of $1.10 per pound in early June. Look for wings in the $1.20-to-$1.30 range for most of the summer.


John T. Barone is president of Market Vision Inc. in Fairfield, N.J., and can be reached for comment at jbarone@mktvsn.com.