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"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.
[to top of second column in
this article]
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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]
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"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.
[to top of second
column in this article]
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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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