It's a big day for USDA reports on Friday and the first ones out are rather friendly for livestock feeders -- provided timely rains come in much of the Midwest over the next three to five weeks.
USDA's estimates of planted acreages were released this morning. Corn acres are estimated at 79.366 million acres, about a half-million acres below the pre-report estimates of traders, but 1.345 million acres higher than the USDA estimate in March. This year's total is still 3% lower than one year ago, mainly owing to high fertilizer prices this spring.
The additional 1.345 million acres is important, though. Should yield be equal to the long-term trend, those acres will add nearly 200 million bushels to this year's crop -- about 10% of projected carryout stocks.
The major benefactor of the reduction in corn acres is, of course, soybean acres. USDA's June estimate of 74.93 million acres is below trade estimates of 75.132 mil acres, but is still nearly 2.8 million acres more than one year ago.
The June Grain Stocks report came out about as expected with corn stocks pegged at 4.353 billion bushels (compared to an expected 4.362 billion bushels) and soybean stocks at 990.1 million bushels (compared to and expected 1,012.0 million bushels). Corn stocks are very similar to one year ago at this time, while bean stocks are substantially larger (41%) than one year ago.
Feed Cost Concerns Remain
These reports certainly don't mean we are out of the woods on feed costs. I attended a meeting of pork producers this week where the consensus was "We're okay for now but we need rain soon." That was an almost universal report. This week's rally in Chicago Board of Trade corn futures reflects this continuing concern about crop conditions and rainfall.
As for soybean meal, all of the contracts are now comfortably back within a trading range that dates back to February, and there is $10.10/spread in the futures prices that are on the board through December 2007. Neither of those provide much volatility, and if I had to say what the "normal" price of bean meal is, I would say $180/ ton -- the median of prices on the board as of Friday morning.
Prices Trend Downward
As for hog markets, they appear very "toppy" -- a real technical economist term there, right? Nearby futures have certainly turned to the downside, while the fall contracts are lower. Cash prices early this week are nearly $4 lower than just a week ago and it is practically the first of July. I thought the odds were high of a seasonal top a month ago during Pork Expo, and I'm even more confident of that now. Producers should be looking to get a higher portion of fall and winter supplies priced as cash weakness will likely drag down those deferred contracts.
Hogs & Pigs Report Due Out
And finally -- the Quarterly Hogs and Pigs Report is due out today. The ranges and averages of market analysts pre-report estimates, as compiled by DowJones, appears in Figure 1. These estimates still reflect a very modest growth pace given recent profitability, but also reflect market conditions this spring that were decidedly disappointing.
Analysts still expect larger slaughter hog supplies this fall and that should pressure prices. The interesting thing to note here is that analysts are still very pessimistic about productivity gains. Farrowings and farrowing intentions numbers are either smaller or no larger than the sow herd increase, implying reductions in breeding herd efficiency. I don't think that is happening but we will see. The projected increase in litter size is about "normal" for the past couple of years.
Have a great July 4th holiday and find a copy of the Declaration of Independence to read -- preferably aloud -- before you partake of our bountiful food supply and enjoy the fun of a local Independence Day parade. You'll have a deeper appreciation for everything after you read the marvelous vision of our Founding Fathers.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.