The dairy industry is in as bad a shape as the stock market, with product prices going from record highs in 2008 to rock bottom in early 2009. U.S. Department of Agriculture forecasts show big double-digit percentage price declines on all products for 2009. What happened? Basically, the industry got caught with too much milk as a global recession and a stronger dollar shut down export markets. Cheese exports for 2009 are forecast to be 45 percent lower than in 2008, with butter down 50 percent. As a result, the industry is pulling back. Dairy cow slaughter is running 25 percent above a year ago year-to-date.
Block cheese prices, which had hit highs of $2.28 in May 2008, fell to lows of $1.04 in January, even below USDA price support levels, and were at $1.22 in mid-April. The USDA’s 2009 block forecast is $1.30, 31 percent below $1.89 in 2008. Butter prices at $1.20 in mid-April were well below expected Easter price levels. The USDA’s 2009 butter forecast at $1.20 is 16 percent lower than last year’s $1.43 average.
Milk supply will decline this year, and dairy prices will eventually rebound. That presents some very difficult choices for buyers. Milk futures, which at times pointed to cheese prices as high as $1.80 this fall, were likely a bit overblown. Still, it remains to be seen if the dairy industry’s efforts to reduce herds and production will have a big enough impact on supplies before the cheese market hits its typical seasonal price peak in September.
Beef—March’s USDA cattle report showed feedlot inventories at 11.23 million head, down 5.3 percent from a year ago and lower than expected. Placements in February were down 3 percent, while marketings were down 5 percent. Even so, heavier steer weights and increased cow slaughter will boost 2009 beef output to slightly above a year ago. Weaker demand should keep beef prices in check for most of the year. The USDA’s 2009 cattle price forecast was left unchanged from last month at $86.50 per hundredweight, 6 percent below 2008 levels.
The “big three” grilling holidays—Memorial Day, May 25; Father’s Day, June 21; and July 4—are quickly approaching. Beef short loins, striploins and top butts look to hit seasonal price peaks in May. Ground beef is in high demand as a “value” item. Reduced imports were a key factor in 2008, especially on 90-percent lean beef trimmings. But a stronger dollar and high rates of dairy-cow liquidation should provide an adequate supply of both imported and domestic “90s” this year.
Coffee—The International Coffee Organization expects a 1.25-percent increase in world usage this year to push world consumption above production levels. But a larger Robusta crop in Vietnam, up 20 percent, should help off-set lower Arabica supplies from Brazil and Colombia. In “normal” years, Robusta wouldn’t be able to make up for tight supplies of higher-quality Arabicas. But with consumers trading down from Star-bucks and takeout coffee for more “at-home” brew, Robusta will help fill the gap this year. Coffee futures at $1.15 in mid-April are up 8 cents from a month ago, but within the $1.05 to $1.20 trading range of the past six months. Look for tight global supply fundamentals, with a sprinkle of spec/fund buying, to push coffee prices gradually higher this year.
Grain—In April’s Supply & Demand report, the USDA lowered both domestic and world 2008-09 corn-ending stocks. In March, the USDA had bumped its 2008-09 forecast for ethanol-based corn usage from 3.6 billion to 3.7 billion bushels, 22 percent above a year ago. The USDA also projected 2009-10 corn-for-ethanol use to jump an additional 14 percent. The USDA’s 2008-09 corn price forecast is 10 cents higher this month, at $4.20 per bushel. Futures prices are also higher, jumping from lows of $3.43 in March to above $4 in early April.
2008-09 wheat-ending stocks, both global and domestic, have not changed significantly in recent months. Slightly higher usage and exports projections pushed the USDA 2008-09 price forecast a nickel higher to $6.85 per bushel. Chicago wheat futures have been volatile, dropping below $5 in early March and then jumping to $5.63 in early April, before settling back into the $5.20s mid-month. 2010 forward contracts are trading above $6 because of anticipated declines in wheat acreage, as soybean acreage increases.
Oil—Higher-than-expected soybean exports and lower-than-expected acreage led to price rallies across the soy complex. But weak domestic demand for soymeal has led to a 10-percent fall in soybean crush, versus year-ago levels. Some of the effects of that reduced crush are being offset by higher global vegetable oil supplies and lower domestic usage. Still, soy oil futures have jumped from lows of just below 30 cents per pound in mid-March to 36 cents in mid-April. The USDA’s 2008-09 soy oil forecast is up a penny at 31 cents per pound, and odds are it will be bumped higher again next month.
Pork—The USDA’s quarterly report showed 65.4 million hogs in the United States, down 2.7 percent from a year ago but slightly higher than expected. Breeding inventory, at 6 million, was down 3 percent from last year. Looking forward, U.S. hog producers intend to have 2.96 million sows farrow during the March-May 2009 quarter, down 3 percent from 2008 and down 2 percent from 2007. Intended farrowings for June-August 2009, at 2.95 million, are down 4 percent from 2008 and 6 percent from 2007. Producers are cutting back, but maybe not as quickly as necessary to keep pace with lower exports and softer domestic usage. Hog prices for the year are now forecast to average $47 per hundredweight, very near the $47.84 average for 2008.
Poultry—Broiler output will fall sharply in 2009. January production was down 11.3 percent from a year ago. The number of chicks placed for grow-out in the first quarter of 2009 was 6.2 percent below the year-ago number. As a result, the USDA’s 2009 broiler production estimate is now 3.1 percent below 2008. USDA bonelessskinless breast was in the low $1.30s in mid-April but could hit $1.50 by May and $1.60 by June, with highs in the $1.70 range this summer. Look for a bonelessskinless breast average near $1.50 this year, up roughly 20 cents per pound from $1.29 in 2008, and very close to the $1.48 level of 2007. Wings priced in the $1.30s in mid-April are still sky-high for this time of year. Look for wings to go lower, reaching $1.10 this summer.
