Hog and pork prices continue to be hammered by excess supply, recession-reduced demand and a sharp drop in exports. Pork supplies in storage totaled 578.8 million pounds in June, 9 percent above the year-ago supply and a record high for this time of year. Hog slaughter is backing up, and as a result slaughter weights are up 4.2 percent from a year ago. Pork exports in May were down 36 percent from a year earlier, as some international bans related to swine flu fears remain in place.
Lean-hog futures, which hit highs of $72.25 per hundredweight in April, closed at a six-year low of $48.80 on Aug. 7. Cheap pork prices are helping dampen beef and poultry prices as cost-conscious consumers opt for cheaper meat.
Beef—The U.S. Department of Agriculture confirmed expectations of smaller feedlot inventories and a smaller cattle herd, indicating reduced beef output this fall and tighter supplies in 2010. The USDA’s bi-annual cattle inventory report showed 101.8 million cattle, both in feedlot and pasture, in the United States on July 1, down 1.45 percent from a year ago and the lowest level in 36 years. The USDA’s July cattle report showed 9.752 million cattle on feed, down 5.3 percent from a year ago, less than expected and the lowest level in 10 years.
The 2009 USDA forecast for Choice cattle at $85.50 per hundredweight is $10 below their forecast of just six months ago. Cattle prices are expected to rebound in 2010 to $90.50, driven by recovering demand and tighter supplies.
Coffee—Coffee futures prices have trended higher over the past month. June’s USDA production forecast was moderately bullish. In producing countries, 2010 ending stocks will fall to 13 million bags, the lowest ending-stocks-to-use ratio over at least the past three decades. There is a fair amount of money flooding back into commodities as investors “bet” on a weaker dollar and recovery-driven inflation for 2010. As a result, coffee futures have gained roughly 20 cents per pound over the past month and were trading in the mid-$1.30s in early August.
Dairy—Dairy farmers have been among the hardest-hit in the agriculture sector by the bursting of the commodity-price balloon late last year. Milk prices received by farmers in July were 41 percent lower than a year ago, as weak domestic demand and a sharp drop in exports have more than offset reduced milk supplies. As a result, the USDA temporarily increased price support payments by 15 percent for nonfat dry milk and 16 percent for cheese through October. The move will remove 150 million pounds of nonfat dry milk and 75 million pounds of cheddar, totaling $243 million.
While most product prices are expected to remain below last year’s for the balance of 2009, the U.S. dairy herd is forecast to contract by 1.6 percent in 2009 and by 2.6 percent in 2010. Block cheese prices, at $1.31 Aug. 10, are expected to average $1.21 in 2009 and $1.58 in 2010. Butter is projected to average $1.22 in 2009 and $1.51 in 2010. Lower product prices will translate to lower milk prices. Class IV milk will average $10.15 per hundredweight this year and $13 next year. The Class III price is forecast to average $10.60 in 2009 and to rise to $14.30 for 2010.
Grain—In July’s USDA Supply & Demand report, projected 2009-10 U.S. corn ending stocks were raised from 1.09 billion to a higher-than-expected 1.55 billion bushels—mostly due to an increase in corn acreage. Subsequently, the USDA reduced its 2009-10 corn price forecast from $4.30 to $3.75 per bushel. Corn futures, which were $4.49 as recently as early June, closed at $3.22 Aug. 7.
U.S. wheat supplies for 2009-10 were raised on higher acreage and yields. The 2009-10 forecast at $5.30 per bushel is down 10 cents from last month’s estimate and significantly below 2008-09’s $6.78 per bushel estimate.
Poultry—Profitability has returned to the poultry industry. Tyson reported net income of $134 million for its fiscal quarter ended June 27, up from $9 million a year earlier. Similarly, Pilgrim’s Pride, which filed for Chapter 11 bankruptcy protection in December, reported a $53.2 million profit, versus a $52.8 million loss a year ago. Still, production numbers continue to drop because of sharply reduced egg sets and chick placements from earlier in the year. 2009 broiler output now looks to be 3.8 percent below a year ago.
Even with 9-percent lower turkey meat production expected in the first half of 2009 compared with 2008, whole-turkey prices are 10 cents per pound below a year ago because of a large buildup in stocks and lower broiler prices. Exports totaled 153 million pounds in the first four months of 2009, down 25 percent from 2008. USDA forecasts turkey prices at around 81 cents per pound in 2009 and more than 83 cents per pound in 2010.
Soy oil—Export demand for U.S. soymeal has been building, driven by a weaker dollar and less South American availability, given a drought-damaged crop in Argentina. But the increase in crush to meet soymeal demand has led to growing supplies of the byproduct soy oil. In July’s Supply & Demand report, the USDA dropped its 2009-10 soy oil price estimate from 35 cents to 33 cents per pound.
The National Oilseed Processors Association said 133.1 million bushels of soybeans were crushed in June, down from 142.2 million in May but about as expected. Soy oil stocks were pegged at 2.91 billion pounds, up from 2.70 billion in May, slightly higher than expected.
