American Hog News USDA

[mikey]

Smithfield Sees Profits Return
US - US meat and pig meat processing giant, Smithfield Foods has reported income for the third quarter of the 2010 financial year of $37.3 million, compared to a loss last year of $108.1 million.



Sales were $2.9 billion compared to $3.3 billion in the same period last year.

The third quarter of the 2010 financial year consisted of 13 weeks compared to 14 weeks in 2009.

The company said that the current quarterly results include a number of significant items, including pre-tax impairment and Pork segment restructuring charges totaling $16.9 million, Campofrio Food Group debt restructuring and discontinued operations charges of $11.7 million, and the income tax impacts of certain discrete items.

Last year's results also included a number of significant items, including gains on the sale of the company's Groupe Smithfield investment and early extinguishment of debt, Pork segment restructuring charges, cattle inventory write-downs, and a mark-to-market adjustment for hog production hedges. Excluding these items, the prior year loss from continuing operations would have been $24.0 million, or $(.17) per diluted share.

"The third quarter demonstrated the ongoing strength of our packaged meats business, which continues to deliver very strong margins. We are extremely focused on this part of the business, it is paying dividends and the restructuring program is beginning to have an impact," said C. Larry Pope, president and chief executive officer.

"The action items called for in the Pork Group restructuring plan are complete and the benefits are meeting expectations. As of this month, we have closed all six plants that were announced as part of the restructuring plan early last year. We are on track to achieve the targeted $55 million of profit improvement this year, after applicable restructuring expenses, and $125 million of annual benefits beginning in fiscal 2011," he added.

"Much of the success of the Pork Group restructuring plan is attributable to the benefits received from shuttering underutilized plants. These plant closures, combined with the rationalization of unprofitable business, have allowed this organization to realize strong bottom line growth. While the plan has intentionally caused a loss of volume in the Pork segment, it has resulted in a more competitive and efficient cost base and improved product mix to begin to focus on profitable top line growth," Mr. Pope said.

Fresh Pork
Fresh pork operating margins, adjusted for charges in both years, were lower compared to the same quarter last year, as a reduction in hog slaughter levels negatively impacted results.

This year, fresh pork operating profit includes $14.7 million of pre-tax charges related to the announced closure of the Sioux City, Iowa plant and Pork segment restructuring. Prior year fresh pork restructuring charges were $21.2 million. Fresh pork volumes in the third quarter, excluding the impact of the extra week, were 7% below volumes in the prior year.

Export volume in the third quarter was flat compared to the same period last year, despite closed export markets in China and Russia, both of which are important markets for U.S. pork. On a historical basis, exports continued to be very strong.

Packaged Meats
Packaged meats operating profits declined modestly from the prior year after adjusting for restructuring charges in both years. The comparative decline reflects planned volume decreases.

In spite of sharply higher raw material costs, packaged meats operating margins remained robust and were in line with the prior year on an adjusted basis.

Volumes were seven per cent lower than the prior year, excluding the extra week. In large measure, volume decreases were planned and resulted from plant closures contemplated in the Pork Group restructuring plan. Results continued to benefit from pricing discipline, rationalization of unprofitable business, lower overhead and other benefits of the restructuring plan.

International
The company's operations in Poland delivered strong results and brand growth as sales volumes increased 24% and operating profits improved by $6.9 million. Campofrio also reported stronger year over year operating results; however, refinancing and restructuring charges swung the company's share of their results to a loss for the quarter.

International segment results are reported on a 13 week basis and are therefore not affected by the extra week in fiscal 2009.

Hog Production
Hog production losses moderated significantly in the third quarter, reflecting a 12 per cent improvement in live hog market prices in the US and a 16 per cent reduction in domestic raising costs. Live hog market prices in the US increased to an average of $44 per hundredweight compared to $40 per hundredweight in the same quarter last year. Domestic raising costs decreased to $51 per hundredweight from $61 per hundredweight in the prior year.

The company's international hog production operations in Poland, Romania and Mexico continued to show strong performance. Operating results in those operations improved by more than $41 million compared to last year.

Shrinking supplies, lower feed costs, positive currency fluctuations and an increase in the number of head marketed all contributed to the improved results.

Other
Results from the company's investment in Butterball increased $4.0 million as improvements in live turkey pricing benefited the business.

The sharp decrease in Other segment sales is attributable to last year's sell-off of the remnants of the company's live cattle operations which have since been sold. Losses from live cattle operations were $14.4 million last year.

Outlook
"Our biggest obstacle for the past two years has been the lack of profitability in our hog production segment. As of the third quarter, those losses have substantially diminished and the futures markets are trending favorably for us," said Mr. Pope.

"We anticipate that fresh pork margins will improve as hog slaughter levels continue to decline and the Sioux City plant is closed in April. In addition, we expect that fiscal 2010 should be the second best year ever for Smithfield fresh pork exports. Our trade representatives are actively working to fully reopen the Chinese and Russian markets and secure the approval of our plants for shipping. I fully expect these markets to be reopened by the end of this fiscal year," he continued.

"This organisation continues to focus on driving profitable growth through our consumer packaged meats business. Consequently, we are very pleased with the ongoing performance of our packaged meats business over the last two years. It is this focus that will continue to propel the company forward," Mr. Pope said.

"Looking forward to fiscal 2011, hog production should be dramatically improved year over year and pork results should be very solid, owing to the restructuring plan that will be complete. If the current trends continue and the export markets reopen, I believe we could have a very good year in fiscal 2011," he concluded

[mikey]

Market Preview: Federal Market Oversight Likely
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Friday’s USDA/Department of Justice “Competition in Agriculture Workshop,” held in Ankeny, Iowa, was long on rhetoric, but surprisingly balanced regarding substantive issues. A wide range of opinions were expressed and the proceedings were far more orderly than most expected.

The first of four scheduled workshops, the original title was “Issues of Importance to Farmers.” But the Ankeny event included discussions on seed and pork issues. The seed discussion focused primarily on Monsanto’s position in the soybean and corn trait market. The pork industry discussion was much broader.

Future sessions will be held in Normal, AL, focusing on poultry issues, Madison, Wisconsin, targeting dairy issues, and Fort Collins, CO, on beef and lamb issues. A final workshop will be held in Washington, DC, and concentrate on issues regarding farm-to-retail price spreads.

Pork was originally scheduled to be part of the Fort Collins meeting on “Livestock Issues,” but someone in Washington must have discovered that a good number of hogs are raised in Iowa and decided that this might be a good place to talk about pigs.

The primary dose of rhetoric for the day came from the first panel which was comprised of politicians, including Secretary of Agriculture Tom Vilsack and US Attorney General Eric Holder. Most of the session was devoted to some degree of populist positioning, but one take-away was clear: Federal agencies will be more active than in past years regarding competition issues.

As a consumer and a taxpayer, I’m not sure that is a bad idea – given the debacle we have seen in financial markets – and provided the agencies stick to the facts and to correct analysis methods. That proviso is my primary area of concern.

Iowa pork producers Todd Wiley and Chuck Wirtz represented our industry well and they clearly demonstrated the differences in the ways hogs are raised and marketed and the differences in producers’ preferences. Both raise hogs in modern buildings, though Mr Wirtz’s operation is designed to meet certain specification for a niche market. Mr Wiley uses marketing contracts for most of his pigs because he wants guaranteed market access and the time-efficiency that marketing contracts afford.

Mr Wirtz, on the other hand, negotiates the prices of nearly all of his hogs. He calls six packers each week to check their market hog needs for the succeeding week, and negotiations progress from there. Mr Wirtz acknowledged that negotiating pigs takes time and effort, but he believes it is his responsibility to participate in the process and challenged other producers to “at least negotiate some pigs” each week to contribute to the price discovery process.

Negotiated-Price Hog Numbers Declining
Concern about the dwindling number of pigs whose price is negotiated each day will be a recurring theme of these discussions. Figure 1 shows the history of the various methods of pricing hogs and the decline in the share of negotiated-price hogs is clear. In fact, that number reached an all-time low of 4.9 per cent the week of 29 February. At the same time, the share of total hogs owned by packers continues to trend higher while the percentages of pigs on other market formulas (virtually all contracts tied to Lean Hogs futures) and swine/pork market formulas hover around 50 per cent and tend to move opposite of each other over time – indicating that hogs move back and forth between these two methods.


There is no “magic number” that needs to be negotiated for the market to efficiently and accurately determine the value of these “marginal” hogs. When I say “marginal”, I don’t mean to put these hogs down or to imply they are inferior. Neither is necessarily true. “Marginal” means that these are the last hogs valued. These are the hogs near the intersection of S and D in Figure 2 that determine the equilibrium quantity (QE) and price (PE). And in this case, the marginal hogs determine not only the price of the negotiated animals, but of the 40 per cent of the hogs valued at or near that negotiated price.


A very small number of animals could do that if market information is sufficient and the people doing the negotiating have relatively even power AT THE PARTICULAR POINT IN TIME. I capitalise that last phrase because it is both important and dynamic. Sometimes – such as in recent weeks – owners of the marginal pigs are in the driver’s seat and can be very effective in getting higher prices. Other times – such as last summer and during the fall of most years – owners of those pigs have very little leverage and must settle for lower prices. Neither of those means the market is inefficient or incorrect. They just mean it is volatile.

With all of that said, the dwindling proportion of hogs in negotiated sales is concerning. The smaller proportion increases the probability of a mismatch between supply and demand and, thus, will like exacerbate the volatility. And with the thinness of wholesale pork price reporting, the cutout value is probably not a good alternative. What’s more – and I may be alone in this fear – the record for negotiated sales since mandatory price reporting of hog prices began is not too comforting for what might happen to pork markets with mandatory pork reporting. It appears that mandatory reporting may make participants more comfortable with the information and quicken the move to formula pricing. A rather perverse result, yes, but we have to at least consider that possibility give the pattern in Figure 1.

In the end, the message from Todd Wiley and Chuck Wirtz (and from several other panelists) on Friday was clear: Whatever the problems, we think government intervention will not solve them. Participants asked that the industry be allowed to solve its own problems. Some government help may be warranted to facilitate that process, but I hope that plea fell on open ears in Ankeny.

 

[mikey]

CME: Predictor of Fed Cattle/Market Hog Prices
US - What is the best predictor of the prices for fed cattle or market hogs? There is no better predictor of one day’s price than the previous day’s price, write Steve Meyer and Len Steiner.

But another good one is the sum of the cutout value and drop (by-product) value for the respective species. As the charts below show, the cutout value plus drop value is highly correlated to the price of the slaughter animal (live cattle and carcass hogs) for both species over the past 12 years.

So, it is logical that the cutout value is highly correlated to the prices paid for the animals since it is represents the lion’s share of packers’ revenues. Additional revenues are garnered from selling “the drop” or by-products that are not part of the carcass. For beef, the hide is a major portion of this value. Pig skins are far less valuable though they have seen some increase due to their use in Ugg brand boots now popular with teen girls. Organ meats, blood, ears and cuts from the heads are the other major drop components.

We do note that the very lowest hog price-cutout value observations come from the November 1998 through January 1999 period when pork packing capacity utilization was among the highest ever. These observations are the primary reason that a curvilinear regression line provides the best fit but dropping them from the data set does not result in a linear regression becoming the best fit. There is some non-linearity in the hog price—cutout value relationship even without these extreme observations. We think that is due to less excess packing capacity in the pork industry which causes hog prices to be more sensitive in the low part of the price/value range.

The relationship between cattle prices and cutout/drop values is linear and stronger than is that for pork. But also notice that the spread in cattle prices at each cutout + by-product value level is generally larger than is the spread for pork and that the spreads are not consistent across the range of values. There is a larger spread in cattle prices at high cutout+by-product values. Part of this variation could be differences in time since two adjacent dots could be from very different time periods.

Why are these relationships important? First, they provide us some insight into value and price determination in livestock markets. Enduse value drives upstream price and does so with a rather high degree of accuracy. Second, the relationships help us relate one price to another in our forecasting efforts. Finally, these relationships may be quite important in the ongoing debate about market power in cattle and hog markets. Last Friday’s USDA/DOJ Agricultural Competition Workshop in Ankeny, Iowa was the first of a series that will address this topic. The Ankeny meeting included some significant saber rattling by politicians and bureaucrats. We hope they take time to look at facts and relationships such as these in their rush to fix “problems”. More on the workshop in tomorrow’s DLR.

[mikey]

Hogs & Pigs Report: Finally Some Good News
US - Economist Steve Meyer writes, "After two years in which about any light at the end of the tunnel turned out to be an oncoming freight train, pork producers have every right to be encouraged by the USDA’s Quarterly Hogs and Pigs report issued last Friday."



Table 1 contains the key data from Friday’s report and readers can see from the right-most column that every number except one (the 180 lb. and over inventory) was smaller than analysts expected. It’s not that analysts are always right, but their pre-report opinions are meant to measure the changes that are already “in the market” – especially the futures market. These relatively large deviations imply strong Lean Hogs futures prices on Monday – most likely limit up at some point during the day. That conclusion applies more strongly to the deferred contracts where the impacts of a 2.4 per cent smaller December-February pig crop might be more greatly felt.


As for the “smell” tests, this report is okay, but not great. The year-on-year change in the 180-lb. plus inventory (-1.1 per cent) agrees almost precisely with March slaughter through last Saturday (-1 per cent). The problem, if there is one, lies in the comparison of the December-February pig crop (-2.4 per cent) to the under-50 lb. number (-4 per cent). January-February weaner/feeder pig imports from Canada were 3.1 per cent lower (about 25,000 head) than last year. That number is far too small to explain the difference between the pig crop and the lightweight inventory estimate. Pigs from this group will begin to come to market in June, so we will not have a good test for which number is closer to correct until then.

The report also indicates that the rapid productivity increases witnessed over the past two years may be slowing a bit. Reductions in farrowings and farrowing intentions were larger than anticipated, but are very much in line with the change in the breeding herd. The growth rate of average pigs saved per litter fell all the way (I’m being facetious) to 1.4 per cent vs. one year ago. That still leaves the average growth rate for the past two years at 2.15 per cent, the last three years at 2.08 per cent, but it does mark the first quarter with under 2 per cent year-on-year growth since the December 2007-February 2008 quarter. See Figure 1.


Figure 1 also shows the normal seasonal pattern of litter size growth picking up in the Mar-May quarter, and peaking in June-August. It will be interesting to see if that happens this year, given the difficulty we have seen with molds and toxins in corn. While producers have no doubt been careful about the corn they use in sow diets, one would expect some impact on productivity. Will it come in farrowings/breeding animal or pigs/litter? Regardless, any negative impact adds to the positive impact of this report on market prices.

Significant Supply Shift
These numbers change the supply outlook for 2010 pretty dramatically. The December report indicated modest reductions in Q1 and Q2 slaughter that actually tapered off in the second half of the year. As Figure 2 shows, this report indicates that the reductions will get larger as we progress through the summer and early fall before declining in December. When lower numbers of Canadian feeder pigs are factored in, this report says that slaughter will be down 4 to 4.5 per cent from June through September. Any semblance of a normal summer and, thus, a normal market weight decline, could take another 1-2 per cent off of pork supplies compared to last summer’s big hog-bloated total.


Talking about a 5 per cent pork production decrease is something akin to speculating on a Chicago Cubs World Series championship – it just does not happen very often! Year-over-year pork production has fallen by 5 per cent or more in only 30 of the 582 weeks since 1 January 2001. Four of those weeks were between 26 December 2009 and 30 January 2010, and two of them were last summer when packers cried “uncle” over record low margins and slowed chain speeds or idled plants to push cutout values higher, which thereby created a major positive turning point for the hog market.

So 20 per cent of the historical weeks with 5 per cent or greater reductions have occurred in the past nine months and I doubt the tally is over. The long-predicted, long-anticipated reduction of pork supplies that simply had to happen to cover a quantum increase in costs is finally here. I just hope nothing goofy happens on the demand side to mess up the party. All of you deserve one!

Table 2 shows my price forecasts, as well as those of the University of Missouri, Iowa State University and the Livestock Marketing Information Centre. It is important to note that the futures prices in Table 2 are from Friday, 26 March. Chicago Mercantile Exchange Lean Hogs April futures are roughly $2 higher and the remainder of the 2010 contracts are up the $3/cwt. daily limit as of 10:40 a.m. yesterday, Monday, 29 March.

[mikey]

CME: US Meat, Poultry Sectors Face Harsh Reality
US - USDA’S Prospective Plantings Report, released on 30 March, indicates higher corn and soybean acres than one year ago, write Steve Meyer and Len Steiner. The harsh reality for producers is that the consumption of animal products is going to continue to decline.



Both USDA estimates, though, were lower than the average of analysts’ pre-report estimates as published by DowJones and included in yesterday’s DLR. Estimated wheat acres were just over 500,000 higher than analysts expected with the majority of the added acres being winter wheat. Total acreage planted to these four major crops is virtually unchanged.


A harsh reality for the US meat and poultry sectors is that total per capita consumption of meat and poultry has decline significantly since its peak in 2006 and is quite likely to decline even more. For many years, we speculated on just how much meat US consumer can actually consume. The growth pattern was not always steady but it was long-standing and, after every reduction such as that of 1993 or 2000, new growth eventually pushed consumption to new record levels. Since the 2006 peak of 220.18 pounds per person, however, the total has fallen by 5 per cent (to 209.17) and is forecast by the Livestock Marketing Information Center to decline by another 1 per cent in 2010 and 2011.


There are a number of reasons for the decline so far and for the prospect of further declines:

Lower production and growing exports. Both of those leave less product available for domestic consumption and dividing by a population that is still growing by 0.8 to 0.9 per cent per year drives per cap figures down. It remains true that year-to-year changes in per cap consumption are more a measure of output changes than they are a measure of consumer preferences. But the long-term per cap consumption trends is quite important for individual species and the sector as a whole.


Changing demographics. 85 million Baby Boomers are reaching ages which historically have been associated with lower activity levels and consumption. An aging America will not be positive for meat consumption.


Cultural trends that are working against meat intake. Everything from animal rights to HSUS to “meatless Mondays” to a growing number of young people who eat little or no meat suggest that this trend is far from over.
Of course, consumption is not demand. Demand includes consideration of the prices that various levels of consumption will command. But including prices to arrive at demand indexes does little to improve the picture. Indexes for the three largest species peaked with the Adkins Diet in 2004-2005 and have trended downward since. Only pork managed meager gains in 2007 and 2010.

[mikey]

Market Preview: Managing Risk in an Unpredictable Market
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



For all of you feeling particularly giddy after last week’s markets, allow me to mention one thing to keep you grounded: H1N1. I mention it because there have been several outbreaks in the Southeast recently. And, it serves as an example of what can go wrong just when things are looking jolly good. Reality checks are part of the job. There is a good reason economics is called the dismal science.

What if H1N1 or foot-and-mouth disease or classical swine fever or any other swine disease that Russian or Chinese buyers could cite as a reason to stop imports of US pork occurred? How would that affect the improvement in potential profitability that we saw last week as Chicago Mercantile Exchange (CME) Group Lean Hogs contracts rallied to contract life highs, corn futures fell to six-month lows and soybean meal futures lost $10/ton?

Don’t think for a minute that it cannot happen. It can.

I had an epiphany a few weeks ago when I saw a chart of threats to the US pork industry. The chart was developed in early 2009 by a task force that was designing a new strategic plan for the National Pork Board. The chart had about 80 issues arrayed in a graph that had “impact” on one axis and “probability” on the other. The objective, of course, was to focus on the items that ranked high on both scales, ignore the ones that ranked low on both scales, and devise other strategies for the “trade-off” issues that were high on one scale and low on the other.

It was an impressive list of big and small challenges, put together by a group of really smart people who knew the pork industry and the business environment it faces. The interesting point is – a human virus that hurts pork demand was not on the list. The list did include “influenza,” but it was in the context of a seasonal flu that sickens pigs. Anything resembling the H1N1 scenario did not make the list only three months before the crisis hit.

Now, it’s not my intention to denigrate any of the people who worked on the Pork Board’s plan, the process they used, or the Pork Checkoff and the producers and staff who manage it. No one did anything wrong. I only offer it as proof that “stuff happens!” And it can happen at any time.

Consider the Options
Last week’s price changes pushed projected pork producers’ profits to over $40/head in June and July. My forecast of profits for the remainder of 2010 average over $24/head and bring the forecast profit level for all of 2010 to over $19/head (Figure 1) – a figure that includes losses in both January and February!


When I recommend hedging, I usually refer to using CME Group Lean Hog futures to lock in a specific expected price. Figure 2 shows the scenario where on the morning of 2 April, a producer could sell a June Lean Hog (LH) contract at $85.25. If the expected basis (i.e. the expected difference between the cash price realized by a given producer and the futures price on the delivery date of the pigs) is $2.00 under (i.e. -$2.00), selling that futures contract will yield a net price of $83.25. It’s a done deal. The only thing that could change the realised price is the basis being something other than $2.00 under. But some producers don’t like ruling out a windfall if markets rise.


I have not recommended using LH Options much for two reasons: They tend to be expensive and they are pretty thinly traded if you are looking more than four to six months in advance. Considering put options for this summer’s marketings, though, solves both of these issues to some degree. Since we are only about four months away from the August expiration, the time value component of LH Option premiums is relatively small, which means that options are more affordable. In addition, being this close to the delivery period means that more traders are participating in this market, providing more liquidity and, thus, the opportunity to buy a decent number of puts without actually impacting the premium level.

So, this may be a wonderful time to use LH Put Options to put a floor under hog prices while leaving the upside gains in play. Figure 3 shows how that would work by buying a June $82 Put, which had a premium of $1.80 on Monday morning. Assuming our $2-under basis, this put would put a floor of $78.20 on hogs sold against the June contract (i.e. late May and early June deliveries), while allowing the price to rise should cash and futures markets rally between now and June 14 (the expiration date of June Lean Hogs futures). Yes, you will be out the $1.80 premium, but that premium represents only 2.2 per cent of the strike price and 2.3 per cent of the expected floor price.


The $78.20 floor price would be roughly $14/cwt. higher than my predicted breakeven cost for June-delivered market hogs. A floor profit of $28/head sounds pretty good when one considers it is virtually impossible to identify all of the risks producers’ face every day.

NOTE: Data for Canada’s hog slaughter and prices are one week in arrears. Canada’s market information websites were not operating properly Monday morning.

 

[mikey]

Market Preview: Managing Risk in an Unpredictable Market
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



For all of you feeling particularly giddy after last week’s markets, allow me to mention one thing to keep you grounded: H1N1. I mention it because there have been several outbreaks in the Southeast recently. And, it serves as an example of what can go wrong just when things are looking jolly good. Reality checks are part of the job. There is a good reason economics is called the dismal science.

What if H1N1 or foot-and-mouth disease or classical swine fever or any other swine disease that Russian or Chinese buyers could cite as a reason to stop imports of US pork occurred? How would that affect the improvement in potential profitability that we saw last week as Chicago Mercantile Exchange (CME) Group Lean Hogs contracts rallied to contract life highs, corn futures fell to six-month lows and soybean meal futures lost $10/ton?

Don’t think for a minute that it cannot happen. It can.

I had an epiphany a few weeks ago when I saw a chart of threats to the US pork industry. The chart was developed in early 2009 by a task force that was designing a new strategic plan for the National Pork Board. The chart had about 80 issues arrayed in a graph that had “impact” on one axis and “probability” on the other. The objective, of course, was to focus on the items that ranked high on both scales, ignore the ones that ranked low on both scales, and devise other strategies for the “trade-off” issues that were high on one scale and low on the other.

It was an impressive list of big and small challenges, put together by a group of really smart people who knew the pork industry and the business environment it faces. The interesting point is – a human virus that hurts pork demand was not on the list. The list did include “influenza,” but it was in the context of a seasonal flu that sickens pigs. Anything resembling the H1N1 scenario did not make the list only three months before the crisis hit.

Now, it’s not my intention to denigrate any of the people who worked on the Pork Board’s plan, the process they used, or the Pork Checkoff and the producers and staff who manage it. No one did anything wrong. I only offer it as proof that “stuff happens!” And it can happen at any time.

Consider the Options
Last week’s price changes pushed projected pork producers’ profits to over $40/head in June and July. My forecast of profits for the remainder of 2010 average over $24/head and bring the forecast profit level for all of 2010 to over $19/head (Figure 1) – a figure that includes losses in both January and February!


When I recommend hedging, I usually refer to using CME Group Lean Hog futures to lock in a specific expected price. Figure 2 shows the scenario where on the morning of 2 April, a producer could sell a June Lean Hog (LH) contract at $85.25. If the expected basis (i.e. the expected difference between the cash price realized by a given producer and the futures price on the delivery date of the pigs) is $2.00 under (i.e. -$2.00), selling that futures contract will yield a net price of $83.25. It’s a done deal. The only thing that could change the realised price is the basis being something other than $2.00 under. But some producers don’t like ruling out a windfall if markets rise.


I have not recommended using LH Options much for two reasons: They tend to be expensive and they are pretty thinly traded if you are looking more than four to six months in advance. Considering put options for this summer’s marketings, though, solves both of these issues to some degree. Since we are only about four months away from the August expiration, the time value component of LH Option premiums is relatively small, which means that options are more affordable. In addition, being this close to the delivery period means that more traders are participating in this market, providing more liquidity and, thus, the opportunity to buy a decent number of puts without actually impacting the premium level.

So, this may be a wonderful time to use LH Put Options to put a floor under hog prices while leaving the upside gains in play. Figure 3 shows how that would work by buying a June $82 Put, which had a premium of $1.80 on Monday morning. Assuming our $2-under basis, this put would put a floor of $78.20 on hogs sold against the June contract (i.e. late May and early June deliveries), while allowing the price to rise should cash and futures markets rally between now and June 14 (the expiration date of June Lean Hogs futures). Yes, you will be out the $1.80 premium, but that premium represents only 2.2 per cent of the strike price and 2.3 per cent of the expected floor price.


The $78.20 floor price would be roughly $14/cwt. higher than my predicted breakeven cost for June-delivered market hogs. A floor profit of $28/head sounds pretty good when one considers it is virtually impossible to identify all of the risks producers’ face every day.

NOTE: Data for Canada’s hog slaughter and prices are one week in arrears. Canada’s market information websites were not operating properly Monday morning.

 

[mikey]

Pork Commentary: USDA Pork Cutouts Break 90 Cents Per Pound
CANADA - This week's North American Pork Commentary from Jim Long.

Jim Long is President &
CEO of Genesus Genetics.
To have high hog prices the packer needs to get paid enough. At the end of last week USDA pork cutouts averaged 90.68 cents per pound. This is up an astonishing 11 cents per pound (79.31) in the past two weeks or about $22.00 per head. If cutouts continue to appreciate as we expect, packers like farmers will not be able to stand prosperity and will bid most of their margin out of hogs as hog supply continues to decline. The US marketed 2.073 million hogs last week. This is 64,000 less than the same week ago. Less supply is here and it is going to get lower yet.

Other Observations
USDA Cold Storage Report for 31 March was released last week.
Pork in storage 31 March 2009 28 February 2010 31 March 2010
1,000 pounds 594,127 515,911 510,482

There was 84 million fewer pounds of pork in storage this year compared to last. Less pork in storage is price supportive. We expect because it is impossible to have no pork in storage because of the structure of our industry. The significant amount of pork is what over 350 million pounds is.

The USDA 1 April Cattle on Feed Report was released last Friday. The bottom line: 4 per cent fewer cattle on feed than a year ago. Cash steers were 99 cents per pound last week, a year ago the price was 88 cents with beef cutouts last week around$1.67 per pound up from a year ago which was $1.45 per pound. Some analysts are projecting 8 per cent less cattle to come to market this July.


Couple this with cattle market weights now running 24 pounds per head lower than a year ago (1979 lbs vs. 1255 lbs). You have less cattle, less beef, and higher beef prices which will be supportive to pork prices over the next few months.


Corn plantings in the USA and Canada have had a phenomenally fast start. The positive correlation between higher yields and early plantings is a fact. Early planting speed we expect will inadvertently lead to more acres put into corn. A bushel of corn is currently a little cheaper than last year but where the big difference in feed rations is corn DDG’s a ton $87.00 versus $120.00 a year ago.
It is reported that in 2009 – 2010 Russia’s production of corn will for the first time exceed the United States. The USDA predicts Russia will produce 61,700 million tons compared to 60,314 million tons for the United States. Russian President Medvedev announced last year his Country’s goal to bring a further 20 million hectares (44 million acres) into production. The Russian goal is to double annual corn production tonnage to 115 – 136 million tons. What is really amazing is the US corn ethanol programme that has pushed global corn price points to $3.50 per bushel from $2.00 has been a huge stimulus for global grain production enhancement as it has brought fallow acres into production. We have seen first hand the massive investment in Russia to increase corn and grain production. Long term land leases of $8 an acre will keep Russian cost of production at globally competitive levels. Where there is corn there will be pigs. Over the next few years we expect Russia’s grain and hog production will increase significantly. Both indirectly stimulated by the US subsidisation of Corn Ethanol Programme.

Genesus Domination
Swine Management Services
Swine Management Services (SMS) of Fremont, Nebraska is the world’s largest swine benchmarking service. Genesus has participated in SMS Benchmarking since 2006 as the Service has grown from 380 farms with 722,417 females to its present 2009 level of 683 farms with 1,215,511 females.

Genesus has grown along with SMS but one thing remains consistent, our domination of the results with, 8 of top 10 farms for all four years and 9 to 15 of the top 20 over the same period.

Genesus believes like many successful, industry leading companies that the only way you improve, get to the top and stay on top is by relentless benchmarking. We invite you to participate and consider our results.

SMS Genesus Performance Data
(1 January 2006 – 31 December 2009)
Year 2006 2007 2008 2009
No. of SMS Farms  380 467 585 683
No. of SMS Females 683,570 839,998 1,106,344 1,188,626
No. of Genesus Farms 30 44 49 51
No. of Genesus Females 24,725 31,407 38,596 42,399
SMS Top 10 per cent SMS 27.20 27.12 27.31 27.62
Genesus Top 10 per cent 29.45 29.97 29.71 30.06
SMS Average All 22.58 22.94 23.30 23.80
Genesus Average All 26.41 26.55 26.78 26.82
SMS Bottom 25 per cent 18.98 18.82 19.72 20.16
Genesus Bottom 25 per cent 24.89 25.17 25.19 25.26
Genesus Herds in Top 10 8 8 8 8
Genesus Herds in Top 20 9 14 15 13

All genetic companies are represented in the SMS database. The facts are indisputable; Genesus is the number one female, with consistent, significant, dominant performance four years running. Isn’t it time you moved up to the Genesus Advantage?


Author: Jim Long, President & CEO, Genesus Genetics 

[mikey]

CME: Pork Production Lower Than a Year Ago
US - Meat and livestock prices continue to move higher despite modest increases in combined beef, pork and chicken supplies - an indication that overall demand may be on the mend, write Steve Meyer and Len Steiner.



Fed steer prices were up 1.3 per cent from the previous week and now 18.45 higher than a year ago. Choice beef wholesale prices were up 0.4 per cent from the week before and they are now 16.84 per cent higher than a year ago.

Beef prices were higher even though overall slaughter for the week continued to gain over last year’s levels. Total cattle slaughter for the week was 673,000 head, almost 2 per cent higher than a week ago and 2.7 per cent higher than last year. Much of the increase was due to more cows coming to market. We estimate that total cow and bull slaughter for the week was up 11 per cent compared to last year while steer and heifer slaughter was up 1.3 per cent.

Cow slaughter continues to run well ahead of last year and the five year average as producers respond to sharply higher prices for grinding beef. Steer and heifer slaughter was pushed higher given much higher prices being paid for a number of beef items going into the Memorial Day weekend. However, we expect that fed cattle slaughter will rub below year ago levels for much of this summer, reflecting tight feedlot inventories.


Wholesale pork prices also continued to move higher and the pork cutout for the week was quoted at an average $90/cwt, only slightly higher than a week ago but 57.6 per cent higher than last year. While pork supplies are lower than last year, the magnitude of the decline in supplies cannot account for the current spike in pork prices.

Hog slaughter for the week was 1,992 million head, just 1.2 per cent lower than last year. Hog carcass weights have been moving up in recent weeks, offsetting some of the reduction in slaughter. Total pork production for the week was only 0.6 per cent lower than a year ago. While export data will not be available for some time, we suspect that export demand remains a significant driver in the pork complex at this time. Domestic end users seem to have been caught a bit flat footed by the sharp spike in hog prices. While most expected prices to be higher this summer but the magnitude of the increase is well outside the range of forecasts that we have seen.


Despite very strong prices for beef and pork, risks remain. Chicken supplies continue to trend higher as overall production is currently up 7 per cent from year ago levels (live basis). In addition, a stronger US dollar and risks of a full blown debt crisis in Europe could negatively export demand for both pork and beef.

[mikey]

Weekly Outlook: Can Pork Prices be Maintained?
US - Hog and pork markets probably will be unable to maintain the excitement of this spring when live hog prices reached the mid-$60s in early- to-mid-May, writes Chris Hurt, extension economist at Purdue University.

 Chris Hurt
Extension Economist
Purdue University
 

Recent concerns over European debt have caused many markets to be more cautious about world economic recovery and consumer demand. The related strengthening of the dollar has also dimmed prospects for meat exports. Last year demonstrated just how critical a recessionary economy was in weakening pork demand. A more cautious world now likely means some moderation in pork prices from recent lofty levels, but prices are not going to fold either.

The best news is that pork supplies are down and will stay down for the rest of the year. Pork production so far this year has been down four per cent, and with population growth and expanded trade, per capita availability has been down about five per cent. Per capita supplies should be down near eight per cent this summer, then down three per cent to finish the year. Limited amounts of pork should help maintain very strong prices, especially through the summer.

There is another problem on the horizon, and that is higher retail prices. Data through April shows that US retailers still had not increased the price of pork to consumers. In the first four months of the year, retailers sold pork five cents per pound cheaper than in the same period in 2009. This means that the sharp increase in the farm level prices this spring are primarily being absorbed by much smaller retail margins. That won't last. You can bet that retail prices will soar in coming months.

Just how big is the retail margin absorption? So far this year, the retail margin is down about 26 cents per retail pound, with most of that going back to the producer. That means producers have received 31 per cent of the consumers' expenditures on pork this year compared with only 25 per cent for the same period last year.

The question remains how pork consumers will respond when they see the true cost of pork this summer. The April retail pork price was $2.92 per pound. That will likely move to record high levels this summer, close to $3.10. Consumers are expected to remain cautious this summer as the US and world economic recovery remains slow and unemployment high.

Live hog prices are expected to average near $60 for the second quarter. As retail prices move up this summer, consumers will back off pork somewhat, even though availability will be the tightest of the year. This means live hog prices should be expected to drop a few dollars, into the $56 to $60 range, for a third quarter average. Prices will decline seasonally at the end of the summer, especially after mid-September. The final quarter of the year is expected to see live prices average near $50, with the winter 2011 prices slightly higher.

This means 2010 prices would average about $54 per live hundredweight. Expansion in the breeding herd is not expected until the March 2011 Hogs and Pigs report. While profitability will be strong in 2010, many producers, and their bankers, want to see balance sheets improve before giving the OK for any expansion.

Moderation in corn and soybean meal costs continues to be an important part of the profit outlook. Our projections of the US average farm price of corn are $3.44 per bushel for calendar year 2010 and $3.65 for 2011. Soybean meal prices are projected at $279 per ton for this year and $258 for 2011. The total costs projections are about $47 per live hundredweight for 2010 and $48 for next year. This compares with $54 in 2008 and $50 in 2009.

Profits are projected at $21 per head for this year and $10 per head for 2011. Losses in 2008 and 2009 were estimated at $17 and $24 per head, respectively. Clearly, it will take profits this year and next just to dig out from under the losses of the past two years.

Hedging margins are much lower now than in early May, due primarily to lower lean hog futures prices, and should probably be avoided right now. Production margins should be strong for the rest of this spring and summer. Most will just want to take these strong cash margins. Some recovery in lean hog futures prices seems likely given the generally strong cash prices expected and the hope for a more stable world economic situation. These may provide hedging margin opportunities for this fall and for 2011 production.

[mikey]

US Pork Outlook Report - May 2010
Increased pork production is likely to be encouraged by higher hog prices in 2011, according to the USDA Economic Research Service (ERS) April 2010 Livestock, Dairy and Poultry Outlook.

 

Summary
Prices of live equivalent 51 to 52 per cent hogs are expected to continue to reflect lower supplies and recovering consumer demand. For 2010 prices will likely average $55-$57 per hundredweight (cwt), with US commercial pork production off by 3.3 per cent. Production next year will likely rebound to 2.1 per cent above 2010. Hog prices in 2011 are expected to reflect larger supplies, falling two per cent, to between $53 and $57 per cwt. First-quarter US pork exports were 1.05 billion pounds. Exports for 2010 are expected to be 5.7 per cent above those of 2009. Next year exports will likely increase modestly – 4.4 per cent – reflecting ongoing recovery of foreign pork demand.

Higher Hog Prices Likely to Encourage Increased Pork Production Next Year
Lighter-than-expected weekly hog slaughters in April prompted USDA to adjust slaughter forecasts downward for the balance of 2010. Smaller slaughter numbers are likely to be partly offset by higher dressed weights than expected earlier, resulting from continued strong hog prices, moderate feed costs, and favourable spring weather conditions in major hog-producing states. Pork production in 2010 is expected to be 22.2 billion pounds, 3.3 per cent lower than last year.

Fewer available slaughter animals, however, is one of the more important reasons that hog prices remain significantly above year-ago levels. Moreover, higher hog prices are likely to induce higher farrowings late in 2010 and into 2011, which in turn points to year-on-year higher pork production in 2011. Commercial pork production in 2011 is expected to be 22.7 billion pounds, about two per cent more than this year’s production forecast.

Hog price forecasts for the balance of 2010 reflect smaller hog numbers and recovering consumer demand for US pork products. Second-quarter prices for live equivalent 51 to 52 per cent lean hogs are expected to be $60 to $62 per cwt. Expectations for the third quarter of this year are for hog prices to average $59 to $63 per cwt, before declining to $50 to $54 per cwt in the fourth quarter. The expected price range for 2010 – $55 to $57 per cwt – exceeds that of 2009 by more than 36 per cent, and is the highest since 1996. Prices for the balance of 2010 (second quarter through fourth quarter) also imply positive producer returns, given current USDA price forecasts for corn and high protein-soybean meal, the two major hog feed components.

Average hog prices in 2011 are likely to be lower than for this year due to higher pork production in quarters two to four. Next year’s prices of live equivalent 51 to 52 per cent lean hogs are expected to be $53 to $57 per cwt, almost two per cent below price forecasts for 2010, but still well above most hog producers’ break-even point, given USDA feed input prices.

The higher hog prices that relatively tight hog supplies bring about are expected to combine with recovering consumer demand to result in higher retail pork prices both in this year and in 2011. Second-quarter 2010 retail pork prices should average in the mid-$2.90s per pound, and climb to about $3.00 per pound in the second half of this year. Retail prices next year are expected to average just over $3.00 per pound, a year-over-year increase of about 2.7 per cent over retail prices this year.

First-Quarter Pork Exports up Slightly Year-on-Year
US pork exports finished the first quarter of 2010 at 1.05 billion pounds, 1.3 per cent greater than the same period in 2009. The list of the top five foreign buyers of US pork was about the same as a year ago, and their year-on-year per cent changes are calculated below.


The forecast for 2010 exports remain unchanged at 4.4 billion pounds. However, persistent year-on-year declines in exports to Japan so far in 2010 are a source of concern. Japan is by far the largest foreign buyer of US pork, typically accounting for almost 30 per cent of US exports, with the next largest importer – typically Mexico – accounting for about 20 per cent. So far this year, increased demand for US products from other large importers – especially Mexico and Hong Kong – has largely offset lower shipments to Japan.

Japanese government data indicate an overall reduction in first-quarter 2010 pork imports of nearly six per cent, with lower shipments from the United States accounting for most of the reduction. First-quarter pork shipments from the most important US competitors in the Japanese market – Denmark and Canada – are significantly above year-earlier volumes. Canada’s first-quarter exports to Japan increased 4.5 per cent compared with a year ago. Denmark exported over 20 per cent more pork to Japan than in the same quarter last year. During the first quarter, the year-on-year increase in average US hog prices when converted to a Yen equivalent was larger than that for Canada or Denmark. To the extent that these increases were reflected in changes in pork values, the change in relative values may have accounted, at least partly, for the decline in Japan's imports from the US while those of Canada and Denmark increased.

Most macro-economic indicators appear positive for US pork export growth prospects in 2011. Continued economic recovery abroad should drive modest increases in consumer demand for pork products in foreign markets next year. US pork exports are expected to increase to 4.6 billion pounds, more than four per cent over forecast exports in 2010.

Imports of Both Pork and Live Swine Were off in the First Quarter
First-quarter imports of pork were 199 million pounds, 3.1 per cent less than a year ago. Shipments from both major suppliers of foreign pork products to the United States – Canada and Denmark – were lower in the first quarter. At the margin, exchange rate relationships likely accounted for part of the reduction in imports from Canada. For 2010, total imports of 855 million pounds are anticipated, with a slight increase expected in 2011, to 885 million pounds.

Imports as a percentage of total US pork disappearance averaged slightly above five per cent between 2000 and 2009. For both 2010 and 2011, the ratio of imports to disappearance is slightly below the recent average, meaning that imports are a slightly less important component of total pork consumed in the United States.

First-quarter live swine imports were almost 18 per cent lower than a year ago. The vast majority of live imports are of Canadian origin. Lower imports are a continuation of a trend that began in the second quarter of 2008, and imports are expected to remain low into next year. Total live swine imports, both this year and next, are expected to be about six million head.

It is worth pointing out that two categories of live swine imports – feeder pigs weighing over seven kilograms but less 23 kilograms, and hogs weighing more than 50 kilograms – were higher year-on-year than first-quarter 2009. These increases could reflect very strong US demand for hogs, in light of recent hog prices.

[mikey]

Saturday, June 05, 2010
Global Pork Production Forecast to be Up in 2010
US - There are two major pork producing regions in the world: China and everybody else, write Ron Plain and Glenn Grimes.

 
Ron Plain
China is expected to account for 49.4 per cent of 2010 world pork production. USDA's Foreign Agricultural Service is forecasting world pork production will be up 1.7 per cent this year thanks to a projected 3.5 per cent increase in China. USDA is forecasting 2010 pork production outside China will be down 0.2 per cent compared to last year.

The FAS expects the amount of pork moving in international trade will be up 2-4 per cent this year. They are forecasting increased pork imports by each of our top three foreign customers - Japan, Mexico and Canada.

The US is the world's largest pork exporter. The FAS expects US pork exports to be up 5.7 per cent this year. They are forecasting pork export increases of less than 1 per cent for both the European Union and Canada, the world's second and third largest pork exporters. The number four exported, Brazil, is expected to increase its pork exports by 12 per cent.

The financial crisis in Europe has caused the dollar to strengthen rapidly in recent days making exporting US pork more of a challenge.

USDA's Thursday afternoon calculated pork cutout value was $85.37/cwt, down $2.58 from the previous Thursday and at the lowest level since April 16. Pork cutout has dropped $6.44 since its peak on May 14. A dip in cutout at this time of year is not unusual. The quick spring run up in pork prices often slows retail pork movement in early summer.

The national weighted average carcass price for negotiated hogs Friday morning was $74.11/cwt, $1.14 lower than the previous Friday. Regional average prices on Friday morning were: eastern corn belt $72.74, western corn belt $75.87, and Iowa-Minnesota $75.63/cwt. The top live hog price Friday at Sioux Falls was $55.50/cwt, down 50 cents from the previous Friday. Peoria topped at $51 on Friday and Zumbrota, MN had a top price of $54. The interior Missouri live top Friday was $55/cwt, 75 cents lower than the previous Friday.

This week's hog slaughter totaled 1.791 million head, down 6.9 per cent from the week before, and down 14.4 per cent compared to the same week last year. The big drop in slaughter was due to Monday's Memorial Day holiday.

The average carcass weight of barrows and gilts slaughtered the week ending 22 May was 201 pounds, the same as the week before and up 1 pound compared to a year ago. Iowa-Minnesota live weights last week averaged 270.8 pounds, up 0.7 pounds compared to a year earlier.

The June lean hog futures contract ended the week at $79.05/cwt, down $2.80 from the previous Friday. The July contract settled at $79.72, down $2.88 for the week. August closed the week $2.03 lower at $80.77/cwt and October ended the week at $74.07/cwt.

[mikey]

Market Preview: Profits Could Stretch to 2010 End
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.

Chicago Mercantile Exchange (CME) Group Corn, Soybean Meal and Lean Hogs futures as of Friday, 4 June say there is more to come. My costs and returns model, which are based on the historical Iowa State estimates, have profits of roughly $30/head for June, July and August, and nearly $23/head for September. Current future markets would even provide profits of $5.72/head and $6.87/head, respectively, for November and December – two months that frequently bring red ink, even in good years.

So, is the futures market right? As I have pointed out many times, I find it difficult to argue much with futures markets. They represent a great melting pot of economic information and analysis, all backing real money making real bets on what prices will be in the future. I know of nowhere that more information and analytical talent interact to give us a prediction of the future. That doesn’t mean futures markets are always correct. It only begs the question, “What is a better predictor?”

Good Numbers Needed in Hogs & Pigs Report
USDA’s survey of June 1 hog inventories is underway. Last June’s survey included 9,200 pork producers. March’s survey covered 8,700, so I presume that this year’s June survey will go to roughly 9,000 producers. USDA samples large producers more heavily than small producers since they hold a larger share of total inventories. Responses were received from about 7,600 producers in June 2009 and about 7,000 producers in March 2010.

A personal plea: If you are one of the surveyed producers, please do your best to provide accurate information. The report will impact the hog markets and will be no better than the survey responses received. Garbage in, garbage out applies to more than just computers.

Report Card on March Pig Crop Estimates
So, how has the March Hogs & Pigs report performed so far? In spite of some weeks in which slaughter was below the predicted levels, the cumulative difference between actual US federally inspected (FI) hog slaughter and the levels I had predicted since March 1, based on the March report, has been a very reasonable -1 per cent. And that includes last week’s -14 per cent, which was caused by a mismatch between the weeks in which Memorial Day fell in 2009 and 2010. Figure 1 shows the actual and predicted weekly totals.


If slaughter remains reasonably close to the level predicted by the March report, though, the year-over-year shortfalls will get larger over the next three months. I have weekly slaughter down 4.5 per cent from 2009 levels for August and September. Assuming a price flexibility of -2 to -3, the change in supply would drive prices 9 to 13.5 per cent higher than last year.

But there are two additional challenges to computed expected prices. First, last year’s prices were artificially depressed due to lingering impacts of H1N1 influenza virus, primarily in export markets. Adding even 13.5 per cent to the prices of last August and September doesn’t even get carcass-weight prices to $60/cwt., a level that is ridiculously low based on prices so far this spring. We could throw out 2009 as an odd-ball year and use 2008, though then we would be factoring in the greatest surge of exports in history and would put some weekly prices above $100/cwt., carcass. Averaging the 2008 and 2009 weekly prices and then applying the expected price change puts cash hogs in the upper-$70s in August and upper-$60s in September – levels still lower than current futures market prices suggest.

The second confounding factor is hog weights. Last summer’s cool weather added 2 to 3 per cent to pork production. While few can believe we could have another summer like 2009, this year has been cool so far and weights have actually been 1 lb. higher than last year in each of the last three weeks. At present, it is looking risky to assume that lower weights will provide even more year-on-year strength for hog prices.

Come See Us at World Pork Expo
Please stop in and see us this week at World Pork Expo in Des Moines. National Hog Farmer will be in booth 623 in the Varied Industries Building and our staff would love to visit with you. I will be hanging out primarily in the press center on behalf of the National Pork Board and National Pork Producers Council. This is one of my efforts to fill the large shoes left vacant by University of Missouri Agricultural Economist Glenn Grimes’ retirement. I’m a bit nervous about it, too.

The National Pork Board is also hosting a noon luncheon on both Wednesday and Thursday, which will feature a weather outlook by Elwyn Taylor of Iowa State University and a crop and hog price outlook by yours truly. Join us in the upper level meeting rooms on the south side of the Varied Industries Building for barbecue and prognostication.

It will undoubtedly be a happier group of pork producers trekking to Des Moines this week. Latest estimates from Iowa State University tell us that average Iowa farrow-to-finish operations buying cash grain and selling cash hogs made $39.10/head on market hogs sold in May. That figure follows profits of $27.33/head in April and marks a quick and dramatic turn from losses as recent as February.

 

[mikey]

World Agricultural Supply and Demand Estimates - June 2010
Due to drop in demand, cattle and hog price forecasts for 2010 are reduced from last month, according to the USDA World Agricultural Supply and Demand Estimates for June 2010.


Livestock, Poultry and Dairy
Forecast total US meat production for 2010 is reduced slightly. The production forecasts for 2010 largely reflect lower cattle slaughter and lighter cattle carcass weights in the second quarter and lower expected slaughter in the fourth quarter. Hog slaughter is also reduced for the second and third quarters, but slightly heavier carcass weights partially offset the decline in second-quarter slaughter. Changes in the broiler and turkey production forecasts for 2010 reflect slight revisions to the first quarter. Total meat production for 2011 is raised fractionally. There are no changes to the beef and pork forecasts for 2011. The turkey production forecast for 2011 is raised slightly but broiler production is unchanged.

Changes in red meat and turkey imports and exports for 2010 reflect first-quarter trade data. Broiler exports for 2010 are raised as sales to a number of markets have been stronger than expected. Trade forecasts for 2011 are unchanged.

Cattle and hog price forecasts for 2010 are reduced from last month as demand has slackened. Broiler and turkey price forecasts are raised from last month. The egg price forecast is lowered. Price forecasts for 2011 are unchanged from last month.

Forecast milk production for 2010 is raised slightly from last month reflecting a slower decline in cow numbers and stronger expected growth in milk per cow. Milk production for 2011 is unchanged. Exports for 2010 and 2011 are raised on both a fat and skim solids basis. Product exports were higher than expected in the first quarter of 2010, and with generally tight world supplies, US exports are expected to remain strong into 2011. Import forecasts are lowered for 2010 and 2011. Imports are reduced largely because of smaller-than-expected cheese imports in the first-quarter 2010 and expectations that imports will remain weak into 2011 due to relatively low US prices and tight world supplies.

The Class III price forecast for 2010 is reduced slightly on lower cheese and whey price forecasts. Cheese stocks remain high and international whey prices are weaker. The Class IV price forecast for 2010 is raised on higher butter and nonfat dry milk (NDM) price forecasts. The all milk price for 2010 is forecast to average $15.75 to $16.15 per cwt. The 2011 forecasts for Class III and IV prices and the all milk price are raised. Improving domestic and export demand is expected to support NDM prices. The cheese price forecast is raised as higher butter/powder values are expected to divert milk from cheese production. Coupled with higher forecast exports and lower imports, tighter supplies are expected to support prices. The all milk price forecast for 2011 is raised to $15.80 to $16.80 per cwt.

Wheat
US wheat supplies for 2010/11 are increased slightly this month as higher production is mostly offset by lower carry-in. Winter wheat production is forecast 24 million bushels higher mostly on higher hard red winter wheat. Winter wheat yields were raised in the central and northern Plains and in the Pacific Northwest. Beginning stocks are projected 20 million bushels lower as strong exports of wheat, flour and products during the final weeks of the old-crop marketing year boost 2009/10 exports 20 million bushels. Domestic use for 2010/11 is projected 10 million bushels higher as lower prices encourage more wheat feeding. Ending stocks for 2010/11 are projected six million bushels lower but remain up year-to-year and the highest since 1987/88. The season-average farm price for all wheat is projected at $4.00 to $4.80 per bushel, down from $4.10 to $5.10 per bushel last month. Recent declines in futures prices and lower-than-expected protein levels in hard red winter wheat have sharply reduced price prospects for many producers.

Global wheat supplies for 2010/11 are projected 4.1 million tons lower this month with reduced carry-in and production. Lower beginning stocks mostly reflect reductions for EU-27, the United States and Brazil as 2009/10 exports are raised for all three. Global production for 2010/11 is lowered 3.7 million tons with reductions for EU-27, Syria, Turkey and Russia. EU-27 production is lowered 2.1 million tons reflecting crop damage from recent flooding and heavy rains in eastern Europe and April and May dryness in north-west France and the United Kingdom. Production for Syria and Turkey are lowered 1.3 and 1.0 million tons, respectively, as widespread outbreaks of yellow rust have sharply reduced yield prospects in key growing areas of both countries. Russia production is lowered 0.5 million tons as reports of higher-than-expected winter kill, particularly in the Volga Valley, reduce potential harvested area. Production is raised 0.5 million tons for Ukraine as recent rains have improved yield prospects.

Global wheat trade for 2010/11 is raised with world imports up 2.0 million tons. Import increases include Syria, Turkey, Afghanistan and Bangladesh. Exports are raised for Kazakhstan, Australia, Ukraine and India. World wheat consumption is nearly unchanged as a 1.0-million-ton increase in China wheat feeding is offset by the same size reduction for EU-27. Wheat consumption is also lowered for Iraq and Brazil but raised for Afghanistan. Global ending stocks are projected 4.2 million tons lower at 193.9 million tons. Global ending stocks for 2010/11 are expected to be up 1.0 million tons from beginning stocks.

Coarse Grains
Projected US feed grain production for 2010/11 is unchanged, but smaller carry-in for corn, sorghum and barley is expected to reduce domestic feed grain supplies. Corn food, seed and industrial (FSI) use is projected 110 million bushels higher for 2010/11, mostly in line with higher projected corn use for ethanol, sweeteners and starch for 2009/10. Higher use, combined with lower beginning stocks, drops projected 2010/11 corn ending stocks 245 million bushels to 1,573 million. The season-average farm price for corn is projected 10 cents higher on both ends of the range to $3.30 to $3.90 per bushel. Projected 2010/11 farm prices for the other feed grains are also raised.

US corn use for 2009/10 is projected 135 million bushels higher as increased FSI use more than offsets a reduction in expected feed and residual use. Corn use for ethanol is raised 150 million bushels reflecting the continued record pace of ethanol production and usage through March based on the latest data from the Energy Information Administration (EIA). Higher ethanol production is also supported by record production of gasoline blends with ethanol as indicated by weekly data from EIA through May and forecasts for rising gasoline demand during the summer driving season. Corn use is raised five million bushels each for starch and glucose/dextrose as the gradual economic recovery spurs production of these products. Feed and residual use is lowered 25 million bushels with increased availability of distillers’ grains.

US corn ending stocks for 2009/10 are projected 135 million bushels lower. At 1,603 million bushels, this year’s ending stocks would be down 70 million from 2008/09. The projected 2009/10 farm price for corn is lowered five cents on both ends of the range to $3.45 to $3.65 per bushel based on prices reported to date. Other 2009/10 feed grain changes include a 10-million-bushel increase in projected sorghum exports, a three-million-bushel reduction in barley imports, and a three-million-bushel increase in oats imports. The 2009/10 sorghum farm price is lowered in line with that for corn.

Global coarse grain supplies for 2010/11 are projected 5.3 million tons lower with the largest share of the decline resulting from lower expected corn carry-in in the United States. Global coarse grain production for 2010/11 is lowered 1.4 million tons as higher corn production is more than offset by reductions in barley, oats, rye and mixed grains mostly reflecting reduced crop prospects in EU-27. Flooding in eastern Europe and dryness during April and May in France have reduced expected coarse grains yields in these regions. Global corn production is raised 0.7 million tons as a 1.5-million-ton increase for Ukraine, based on higher reported area, is only partly offset by reductions for Mexico and EU-27. Production is lowered 0.5 million tons for Mexico as dryness has persisted in eastern and central growing areas during May. EU-27 corn production is lowered 0.3 million tons as heavy May rains have delayed field work, reducing expected area and yields in eastern Europe.

Global corn trade is raised for both 2009/10 and 2010/11. Higher corn trade for 2009/10 reflects increased imports by China and Viet Nam and higher exports by Argentina. Higher corn trade for 2010/11 is based on higher expected imports by Mexico, Viet Nam and the Philippines. Exports for 2010/11 are raised for Argentina and Ukraine. Global corn consumption is raised four million tons for 2010/11 mostly reflecting higher use in the United States. Corn feeding is also raised for Ukraine and Viet Nam. With reduced carry-in and increased consumption, global corn ending stocks are projected down 6.9 million tons. At 147.3 million tons, stocks are up 3.9 million tons from 2009/10, but just below those for 2008/09.

Oilseeds
This month's US oilseed supply and use projections for 2010/11 include a small reduction in beginning and ending stocks. Lower beginning stocks reflect higher crush projections for 2009/10. Soybean crush for 2009/10 is raised five million bushels to 1.74 billion reflecting an increase in projected soybean meal exports. Soybean meal exports are projected at record 11.5 million short tons, almost two million above the previous record set in 1997/98.

Lower domestic soybean meal consumption partly offsets the increase in exports. Soybean ending stocks for 2009/10 are projected at 185 million bushels, down five million from last month. Ending stocks for 2010/11 are also reduced five million bushels to 360 million.

Soybean, meal and oil price projections are unchanged this month. The US season-average soybean price for 2010/11 is projected at $8.00 to $9.50 per bushel. Soybean meal and oil prices for 2010/11 are projected at $230 to $270 per short ton and 34 to 38 cents per pound, respectively.

Global oilseed production for 2010/11 is projected at 440.2 million tons, up 0.3 million from last month, mainly due to higher peanut production. China’s peanut production is raised 0.9 million tons to 14.8 million tons based on higher area and yield. EU-27 rapeseed production is reduced 0.5 million tons to 21 million mainly due to lower area resulting from flooding, especially in Poland, in May. Other changes include increased soybean production for Ukraine, and reduced soybean production for China based on lower area. Brazil's 2009/10 soybean production is increased one million tons to a record 69 million reflecting increased harvested area and record yields.

[mikey]

Friday, June 11, 2010Print This Page
WPX: US Pig Producers Back in Profit
US - The US pig meat industry has returned to profit over the last three months, but the situation might not last, writes senior editor Chris Harris.



Economist Steve Meyer, speaking at the World Pork Expo in Des Moines, said that the period that had seen a $6 billion drain on the industry has come to an end with a return to profits in March.

And returns for the pig producers are likely to be helped by low costs for the remainder of the year.

He said that the cost of production is expected to be between $63 and $65 per cwt carcase weight and corn is expected see prices of about $3 with soybean meal at $250-$270 a tonne.

Mr Meyer said the corn prices were still being influenced by the increase in the use of the crop for ethanol.

But there is bullish news for corn because of the potentially bumper crop that is in the field at present.

He said that prices are squeezing the wholesale market and this will have a knock on effect to the retail market.

However, he warned that pig prices might have peaked with only the 4 July holiday in the future holding the hope or another potential spike.

He warned that prices are now likely to fall back from their highs of April and May.

The rise in prices could give the pig producing industry a chance to breathe and offers the potential for expansion, once the industry has built up its cash.