The big jump in corn acreage in the U.S. Department of Agriculture’s June 29 report is likely the result of the agency’s underestimation of farmers’ planting intentions in its previous quarterly report from March, which cut corn, wheat and soybean acres collectively by more than 5 million acres from last year.
The USDA now projects corn acres at 87.03 million, up from 85.98 million last year and the second-highest total since 1946. In the USDA’s July 10 Supply & Demand report, projected 2009-10 U.S. corn-ending stocks were raised by 42 percent, from 1.09 billion bushels to a higher-than-expected 1.55 billion bushels. U.S ending stocks were also revised higher for wheat and soybeans.
Subsequently, the USDA reduced its 2009-10 corn price forecast by 13 percent, from $4.30 to $3.75 per bushel. Corn futures, which were $4.49 as recently as early June, fell to $3.35 in early July. The forecast for lower corn prices is great news for livestock, poultry and dairy producers who have all suffered over the past few years from higher feed and energy prices—and more recently from a sharp drop in export demand.
Beef—June’s USDA cattle report showed 10.41 million head of cattle on feed, down 3.8 percent from a year ago and less than expected. New feedlot placements in May were down 13.8 percent, and marketings were down 8.8 percent from a year ago. First-half 2009 slaughter was down 5.6 percent from last year, with additional year-over-year declines expected for the second half. Seasonally, cattle supplies will peak in July, and carcass weights will continue to improve through September. But a summer surplus will eventually give way to tighter fall supplies. Total net beef supplies for 2009 are forecast to be down 1 percent from 2008.
On the demand side, beef usage slows seasonally after July 4th. In addition, beef prices will be limited due to sluggish foodservice usage and historically cheap pork values. Middle-meat prices declined sharply in June and will remain weak through August. Rib-eye and tenderloin prices will bottom in July and begin moving seasonally higher by September. Chucks and rounds probably saw their lows in June and are also headed higher through fall. Ground beef has been weaker since July 4th. Prices are mostly stable, as lower beef cow numbers are being mostly offset by an increase in dairy cow slaughter.
Coffee—Futures jumped from $1.17 to $1.38 and back to $1.12 over the past two months. The USDA estimates 2009-10 world coffee production at 127.4 million bags, with implied use of 132.2 million bags. That puts 2009-10 coffee-ending stocks at 35.3 million bags, or 27 percent of annual use, which is historically tight. There is a lot of money flooding back into commodities as investors “bet” on a weaker dollar and recovery-driven inflation for 2010. Deferred contracts for 2010-2011 are trading in the $1.20-1.36 range. If world consumption shows any signs of life, near-term contracts could bounce higher in a hurry.
Dairy—Dairy markets have collapsed, as weak domestic demand and a sharp drop in exports have led to a milk supply glut. Block cheese prices, which hit highs of $2.28 per pound in May 2008, were less than half that much at $1.09 on July 10. In the first half of 2009, block averaged $1.21, down from $1.95 in the first half of 2008, and about 20 cents below the 10-year average. Butter is at $1.22, versus $1.55 a year ago. In the first half of the year, butter averaged $1.15, down 17 cents from last year, and the lowest since 2003.
Most product prices are expected to remain below last year’s for the balance of 2009. But financial losses are forcing producers to trim dairy herds and cut milk output. Cheese prices have again dropped below USDA price support levels and are expected to average $1.23 in 2009 before recovering to $1.58 in 2010. For butter, the 2009 prices are expected to average $1.21 for 2009 and $1.50 in 2010. Class IV milk will average $10.15 per hundred-weight this year and $13 next year. The Class III price is forecast to average $10.60 in 2009 and to rise to $14.40 for 2010.
Pork—The USDA’s quarterly report said there were 66.08 million hogs and pigs in the United States on June 1, down 2 percent from a year ago but 1 percent higher than on March 1. Hogs kept for breeding were down 2.7 percent from a year ago, a drop that is smaller than expected. The March-May pig crop was down slightly from 2008, but up 2 percent from 2007. Looking forward, producers intend to have 2.97 million sows farrow during the June-August quarter, down 3 percent from 2008 and 5 percent below 2007. Intended farrowings for September-November are down 2 percent from 2008 and 7 percent below 2007. For 2009, pork production is forecast at 22.8 billion pounds, down 2.4 percent from 2008, and 2010 output is projected at 22.6 billion pounds, down another 1.1 percent.
Hog markets are still feeling the effects of swine flu, and prices remain weak. On the Chicago Mercantile Exchange, lean hog futures closed at $59.50 per hundred-weight on July 13, down from highs of $72.25 in April. Prices will likely rise seasonally in the third quarter, but as slaughter increases in the fourth quarter, prices will fade again. Ham markets, in the low 40 cents, are 30 cents per pound below year-ago levels. Ham prices should be trending seasonally higher, hitting the mid-50-cent range in August and 60 cents in September.
Poultry—Financial conditions in the poultry industry have improved considerably, and producers’ profits were recovering even prior to the big drop in corn prices. Still, production numbers continue to drop due to sharply reduced egg sets and chick placements from earlier in the year. January-June egg sets were down 10.2 percent, and the number of chicks placed was down 9.5 percent from a year ago. With broiler production expected to be down about 2 percent in the second half of 2009 compared with 2008, higher prices are expected, especially if export demand remains high. USDA boneless skinless breast prices should peak in the mid-$1.50s in July and be back at $1.50 or below in August. Wings in the $1.40 range remain sky-high for this time of year. Look for wings to bottom in the mid-to-upper $1.30s in July before heading higher again into fall.
Soy oil—The National Oilseed Processors Association said that 142.2 million bushels of soybeans were crushed in May, 6 percent more than April and more than expected. The increase in crush to meet soymeal export demand has led to growing supplies of soy oil. 2008-09 soy oil ending stocks are now projected to exceed 3 billion pounds, more than double average historical levels. Soy oil futures, which peaked at more than 40 cents June 2, have fallen 18 percent to close at more than 33 cents July 13. In the short term, soy oil prices will likely continue to be weak until excess supplies are worked down. Longer term, an increase of 5 million bushels in soybean crush for 2009-10 could offset the effects of recovering global demand for oil. In July, the USDA dropped its 2009-10 soy oil price estimate from 35 cents to 33 cents per pound.
