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Hog prices

[JUNE 3, 2003]  URBANA -- Live hog prices are expected to average in the low to mid-$40s this summer and drop back to the very high $30s to low $40s for the fall, said a Purdue University Extension marketing specialist.

"If this does occur, the year would show a modest positive margin for many hog producers," said Chris Hurt. "Lower feed prices are also expected by the fall if weather is near normal this summer. Profit prospects for 2004 should be favorable, with some continued reduction in pork supplies, smaller beef supplies, lower costs of production and the improving economy we have all been waiting for."

 

Hurt's comments came as he reviewed the hog market. He noted that hog producers have just seen their operating margins break back into positive territory. Operating losses have been the rule since March 2002, when hog prices dropped below $40 per live hundredweight.

"They have generally averaged below the $40 mark until last month," he said. "Mounting losses last summer and the higher feed prices resulting from last summer's drought have caused producers to cut back on the size of the breeding herd. The cutback was modest last summer but has continued to gain steam such that the current herd size is down about 3 percent."

Hurt noted that the reduced breeding herd size has already begun to be reflected in reduced pork production. Pork supplies have been down about 3 percent over the past two months, and supplies will likely continue to stay down. Pork supplies for the summer and fall are expected to be down about 2 percent.

Hog prices will get some upward encouragement from the demand side as well. The cow that tested positive for BSE in Canada should have some upward spin for hog prices. So far, beef demand in the United States seems to have been little affected.

"This means that the much larger impact has been from the reduced beef supply coming from Canada," said Hurt. "In 2002, the United States imported 1.7 million live cattle and 1.1 billion pounds of processed beef. In total, this amounted to about 8 percent of all beef consumed.

 

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"The reduction of this amount of beef supply seems to be the dominating impact, as live cattle prices have topped $80 per live hundredweight in June for the first time ever. Pork demand will be enhanced as consumers respond to the record high retail beef prices with some substitution of pork."

Hurt added that the trade picture should also begin to turn friendlier for pork producers. Japan and South Korea have also shut off imports of beef from Canada. While this will be most positive for beef exports with known U.S. origin, it will also increase pork exports to these two major buyers. Of course, U.S. pork exports to Canada may be reduced, but this impact could be much smaller, as exports so far this year to Japan and South Korea are nearly six times larger than pork exports to Canada.

 

Exchange rates are another positive development for live hog prices, particularly with Canada, which has been supplying about 6 percent of the United States' live hogs.

"The U.S. dollar has dropped in value relative to the Canadian dollar by 13 percent this year," said Hurt. "The strengthening Canadian dollar provides less incentive to ship hogs to the United States for finishing and processing. However, it will take more time for this impact to develop, as most of these hogs enter the United States on coordinated finishing contracts."

Finally, the U.S. economy shows signs of emerging from its long period of slow growth, at least as forecast by the current rising stock market. Faster growth in consumer incomes would have a small, but positive, impact on hog prices.

"So what do these fundamentals mean for hog prices?" Hurt said. "Clearly, declining hog numbers in the United States, the potential for reduced Canadian imports and improving demand should mean better times ahead for hog producers."

[University of Illinois news release]


Corn and soybean prices

[MAY 28, 2003]  URBANA -- Corn prices have now given back much of the recent gains, with July 2003 futures trading near $2.40 after spiking to a high of $2.59. A continuation of generally favorable weather for new crop development might be expected to push July futures under $2.35 and perhaps back to the late April low near $2.30, according to University of Illinois Extension economist Darrel Good.

"The modest strength in corn prices that occurred in the first half of May appears to have been driven by concerns about planting delays and a one-day BSE reaction," Good said.

According to the USDA, domestic consumption of corn for ethanol production continues at a record pace, but the pace of exports remains very slow. Based on the USDA's report on export sales, cumulative shipments of U.S. corn through May 15 totaled only 1.1 billion bushels, 14 percent less than cumulative shipments of a year ago.

"That pace of shipments is in line with the USDA's projection of a 14 percent decline in exports for the year. To reach the projection of 1.625 billion bushels for the year, shipments between now and the end of August need to average 34.8 million bushels per week. The average rate of shipments to date is 30 million bushels per week," Good said.

Good says old crop corn supplies should be fully adequate to meet consumption needs until the new crop is harvested. However, the relative strength in old crop corn futures and the ongoing strength in the corn basis in many areas would indicate some tightness in old crop stocks or at least reluctance of producers to sell old crop stocks.

"There may be a little more interest in the June 1 stocks estimate, to be released on June 30, than is typically the case. The market now believes that most of the U.S. corn crop will be planted before June 1, moderating some of the concerns about the potential negative yield impacts of late planting," he said.

July 2003 soybean futures traded to a contract high of $6.58 last week, moved below $6.20 early in the season on May 27 and then closed near $6.30. Technically, that contract has the potential to drop back to the $5.90 area, but such a decline near-term would require a confirmation of a sharp reduction in exports and favorable crop conditions.

"The increase in soybean prices over the past two months was driven primarily by a rapid rate of U.S. exports in an environment of relatively small inventories. Some concerns about delayed planting provided additional support for the past two weeks. Prices also got a sharp, one-day boost from news of BSE in Canada. The strong price reaction stemmed from ideas that soybean meal feeding would increase if restrictions were placed on bone meal feeding. All of these price-supporting factors now appear to be dissipating to some degree," Good said.

 

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Large U.S. soybean exports this spring reflected large shipments to China and delay in movement of South American soybeans to the export market due to a combination of some harvest delays and changing currency values.

As of May 15, China had imported 278 million bushels of U.S. soybeans, nearly 80 percent more than imported a year ago. However, there were no outstanding sales of old crop U.S. soybeans to China as of May 15. China has bought about four million bushels of U.S. soybeans for shipment during the 2003-04 marketing year.

Shipments of U.S. soybeans to all destinations moved back above 10 million bushels for the week ending May 22 after dropping below four million bushels the previous week. Shipments between now and the end of August need to average only 4.1 million bushels per week to reach the official USDA projection of 1.01 billion bushels and five million per week to reach the unofficial projection of 1.023 million bushels.

"U.S. soybean exports have not yet rolled over and died. In combination with the slowdown in the domestic crush of soybeans, a slower export pace would suggest that U.S. supplies will be sufficient to meet consumption needs until the new crop is harvested. That slower pattern, however, has not yet materialized," Good said.

The recent pattern of more favorable planting weather has removed some of the concern about the potential adverse yield effects of late soybean planting. While the planting pace is running behind the average pace, significant delays may be limited.

"Longer term, both corn and soybean prices could continue to be quite volatile, with U.S. production prospects being the dominant factor. The most important part of the production season is still to come," Good said.

Good says that in addition to uncertain yields there is also some uncertainty about the magnitude of planted acreage of corn and soybeans. The USDA will provide an update in the June report on acreage. With generally timely planting, the June report should provide a fairly accurate estimate of planted acreage. Summer weather concerns could provide additional pricing opportunities for producers.

"The pattern being demonstrated again this year is that weather and crop concerns tend to provide only brief periods of higher prices. Crop-damaging weather is required to push prices to sharply higher levels for a prolonged period," Good said.

[University of Illinois news release]


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