In case anyone noticed and was wondering, the identical Q1-2009 slaughter numbers under each forecaster in last week’s Figure 1 (the table of forecasts following the March Hogs and Pigs Report) does not mean that all of us came up with the same number. Heaven forbid that economists would ever be that agreeable or precise.
The Q1-09 number in that table is my estimate of actual Q1 commercial slaughter given two months of actual data and virtually all of the daily federally-inspected slaughter data for March. I should have noted that last week. Sorry if I caused any heart attacks or fainting spells. Groups of economists, even when laid end to end, still seldom reach conclusions!
In my “be-patient-about-hog-prices” columns this spring, one factor that I have not addressed is Lent, which is still a big factor in late-winter and early- spring meat markets. Think of it in these terms — one day per week represents 14% of the meals for that week. While Lent is less observed than it once was, there are still a pretty large number of Catholics and some Protestants that abstain from meat on Fridays during Lent. Removing 1-2% of meat and poultry demand during the spring is still a very real possibility and putting it back into play next week could well be the kick start that meat and poultry markets need to begin a spring rally. The bottom line: Don’t’ forget Lent when you think about seasonal price variation. It’s still a factor.
USDA’s Crop-Use Projections
USDA’s monthly World Supply and Demand Estimates (WASDE), released Thursday morning, contained no big surprises that will move markets significantly. This report contains no forecasts for 2009-2010. The only objective data that USDA has at this point is the prospective plantings published on March 31. Projections for this year’s crop and usage will begin with the May Crop Production report and WASDE.
For corn, USDA increased its estimate of feed and residual usage by 50 million bushels to 5.35 billion. I have felt USDA has been low on this number for some time and still may be. The 5.35 billion estimate is still 10% below last year’s figure and roughly 7% lower when additional DDGS availability is taken into account. Reductions in egg sets and cattle placements may justify that large of a reduction, but the forecast of only 4% lower commercial slaughter and a good portion of that caused by fewer Canadian market hogs that don’t eat grain in the United States suggests that the 7% decline may not be achieved. Much depends on how long the broiler and cattle feeding sectors continue to feed fewer animals.
USDA also reduced non-ethanol industrial usage by 10 million bushels, but left ethanol usage stand at 3.7 billion bushels. That is barely enough corn to meet the 2009 renewable fuel standard of 10.5 billion gallons of ethanol.
The net effect of the changes was to reduce projected year-end stocks by 40 million bushels to 1.7 billion. That represents 14% of total annual usage or about 7.3 weeks worth of corn. USDA added 10 cents to the bottom and top of its projected range for the U.S. average farm price, leaving the range at $4.00 to $4.40.
Year-end stocks for wheat, even after being reduced by 16 million bushels to 696 million, are still projected to be over twice as large as last year. Wheat played an important role in feeding decisions last summer. USDA has $6.80 to $6.90 as its predicted range for this crop year, which ends in May for wheat, thus the very tight range since the crop year is almost over. Much higher world supplies and concurrently lower forecast prices kept projected U.S. wheat acres over 4 million lower than last year in the Prospective Planting report, so the degree of help that wheat may provide livestock feeders this year may not be nearly as large as one year ago.
World oilseed supplies were lowered from March’s estimates by 4.36 million metric tons or 1%. About one-seventh of the reduction was in the United States. The conclusion is that the world supply situation is driving soybean prices.
USDA reduced projected soybean carryout this fall by 20 million bushels, primarily due to higher soybean exports. That reduction drove the projected price range to $9.25 to $10.05/bu., higher on both ends than the March estimate of $8.85 to $9.85. Higher beans means higher meal and USDA added $15/ton to the bottom of its previous estimated range. The April estimate is $280 to $300/ton.
Meat Supply Adjustments
USDA made only minor changes to its forecasts for meat supply and usage. Pork production was decreased slightly while exports were increased by 50 million pounds after January’s decent showing. The net effect was to reduce projected 2009 disappearance by nearly 300 million pounds of 0.8 lb./person.
One piece of information that is a bit concerning is that USDA reduced its estimate for broiler production form 35.775 billion pounds to 35.475 billion pounds and reduced its estimate of 12-city broiler price from $81-$86 to $79-$83. This reduction is no-doubt driven by the lack of price impact that broiler industry output reductions have caused thus far – and that is a concern that I share. It doesn’t speak well at all for broiler demand.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com