In the Department of Agriculture’s February estimate of 2007-08 wheat ending stocks, U.S. supplies were reduced from 292 million bushels to 272 million bushels and world supplies were cut from 110.9 million tons to 109.7 million tons. That news helped fan the flames of wheat prices that have been heating up for the past month.
Chicago (soft) wheat futures hit an all-time high of $10.93 on Feb. 8, after averaging $6.35 in 2007. Kansas City (hard) wheat futures are also at a record high of $11.40, up from a $6.43 average in 2007. But the real news has been at the Minneapolis Grain Exchange, where fears of shortages of high-protein spring wheat have sent futures prices soaring to $15.53 per bushel, up from a $6.61 average in 2007.
Beef—The January USDA cattle report said total feedlot inventories were 12.097 million head, 1 percent more than last year. That’s just short of the all-time record of 12.11 million head set Feb. 1, 2006. Barring any negative winter effects, beef supplies are likely to be above year-ago levels through the first half of this year.
Longer-term, the USDA’s biannual all-cattle inventory report showed that there are 96.67 million head in the United States, down 0.3 percent from a year ago. The drop was triggered by drought-reduced grazing land, rising feed costs, and competition for land between farmers and developers. Replacement heifers, which offset the loss of those that leave the herd, were down 4 percent from a year ago, which points to further herd reduction in 2008. Given rising global demand from developing economies abroad, U.S. exports will continue to increase. As a result, prices could move sharply higher when the economy eventually recovers, unless domestic cow numbers rise.
Coffee—Prices continue to gradually grind higher. Futures prices in the mid-$1.40s in early February exceeded October’s $1.41 high and are well above lows of $1.02, which occurred as recently as last May. A small 2007-08 Brazilian crop, down 19 percent from 2006-07, combined with peak winter usage season, is providing the upward bias in coffee prices. However, potential price increases are being capped by expectations of a much larger Brazilian crop for 2008-09. Coffee looks to trade in the $1.15-$1.50 range in 2008, with the lower numbers not occurring until the second half of the year.
Dairy—According to the USDA, tight alfalfa supplies coupled with other higher feed prices will push the milk-feed price ratio to 2.50 for most of 2008, well below the 3.0 level that represents expansion and profitability. However, an increase in replacement heifers points to a freshening of the herd, which would boost productivity and lower costs. The USDA projects 2008 milk production to be 190 billion pounds, up 2.37 percent from 185.6 billion in 2007. The latter figure was up 2.1 percent higher than 2006. Larger milk output will soften dairy prices for the year.
Brisk demand ahead of the Super Bowl pushed block cheese markets to roughly 50 cents a pound more than a year ago in January. Global demand for U.S. dairy products may keep block prices above $1.75 for the next few months. Currently, the USDA is projecting block at $1.67 in 2008, down from $1.74 in 2007. Declining retail and foodservice demand will likely offset the effects of larger exports in 2008. In addition, cheese prices were supported by sky-high nonfat, dry milk prices in 2007. For 2008, the USDA is projecting nonfat, dry milk prices to decline by 17 percent and average $1.41 for the year.
Oil—The bull market in soybean oil is showing no signs of slowing. Soy oil futures, which were 28 cents a year ago, closed at a record high of 55 cents Feb. 8, and forward contracts for 2008 are averaging 56 cents. In February’s Supply & Demand Report, the USDA raised its 2007-08 soy oil price forecast to about 49 cents a pound, up 60 percent from 2006-07.
Exports and biodiesel are the two key fundamentals for 2008. For foreign buyers, a weak U.S. dollar has offset increased soy oil costs and is supporting U.S. exports. A massive winter storm will likely reduce this year’s Chinese rapeseed crop. However, another record-breaking South American soy crop for 2007-08 will take some of the pressure off of the U.S. exports. Domestically, the increased biofuel mandate in the recently passed Energy Act will encourage domestic biodiesel output for years to come.
Pork—Larger hog supplies in 2008, both domestically and from Canada, are expected to pressure hog prices lower. A 4-percent-larger June-November pig crop, along with larger December-May farrowing intentions, likely will translate into 2008 pork production of 21.9 billion pounds, 4.2 percent larger than 2007. Plentiful supplies and a weak dollar will combine to push 2008 exports to 3.7 billion pounds, or 17 percent above 2007. Even so, hogs in 2008 are expected to be roughly $42 per hundredweight, which is 11 percent below 2007.
Easter falls early this year, March 23, and ham markets have already made most of their seasonal gains. Ham market prices will top out in the low-60-cent range per pound in early March and then drop back to the 50-cent range in April. Pork bellies in the mid-80-cent range are up a dime from January and are expected to reach $1 or more by May and June.
Poultry—During the fourth quarter of 2007, eggs set in incubators averaged 214 million per week, up 3.7 percent from a year earlier. Chicks placed for grow-out averaged 173 million per week, an increase of 4 percent. The result will be a higher number of birds available for slaughter and increasing production through the first half of 2008.
As is the case with other commodities, a weak U.S. dollar is stimulating export sales. Broiler exports in 2007 hit a record 5.8 billion pounds, up 11.4 percent over 2006. Additionally, 2008 exports are forecast at 5.9 billion pounds. The value of those exports in 2007 was nearly 50 percent higher than in 2006. Those numbers represent a serious turnaround in profitability for many poultry companies. Huge profitability in dark-meat exports should keep poultry plants busy and make domestic breast prices relatively tame this year.
