Skip navigation
Slowed production drives wheat prices to record highs

Slowed production drives wheat prices to record highs

The U.S. Department of Agriculture’s latest Supply & Demand Report confirmed a trend toward more corn—but at the expense of wheat and soybeans. According to the report, 2007-2008 U.S. wheat production and ending stocks were both reduced. Globally, crop losses in Europe and Russia and drought in Australia have cut into available supplies. World wheat 2007-2008 ending stocks will be the lowest since 1979-1980. That leaves the United States as the primary global source for high-quality milling wheat. Chicago wheat futures that were as low as $4.19 per bushel just this past April, hit record highs of $8.42 on Sept. 5.

Beef—The August USDA report was bullish for long-term cattle prices. Feedlot placements in July were down a larger-than-expected 17 percent from a year ago, following a 15-percent drop in June. The total U.S. feedlot population is now 5 percent below year-ago levels. Cattle inventory growth has either stalled—hopefully—or possibly peaked. Expectations are for September and October feedlot placements to be above year-ago levels. The size of these placements, along with a reading on heifers held back for breeding, will give a clearer picture of producer intentions. But at this point, beef supply fundamentals continue to look tighter than previously expected for 2008.

Time is running short for booking holiday items. Choice 112A heavy rib eye prices bottomed below $5 per pound in July, rose to the $5.30-range in early September and are expected to peak around $6.60 in November. Light, Choice rib eye will run about 40 cents higher. Select 112A heavy rib eye, still under $5 per pound, is headed for $5.50. Choice 189A tenderloin was still a good buy in early September at $8.80 per pound, with prices expected to hit highs of close to $12 per pound in November, while select 189A tenderloin look to jump from $8.40 to near $10 per pound.

Coffee—At $1.13 in early September, coffee futures are unchanged from a month ago and look to remain weak in the near term on stronger supply news and the passing of the freeze season in Brazil. Longer-term fundamentals remain bullish. In June, the USDA estimated 2007-2008 world coffee ending stocks at 16.8 million bags, the lowest since 1961. Look for traders to react sharply to changes in fundamentals and for prices to move higher ahead of the winter consumption season. Looking forward to 2008-2009, Brazil is expected to yield a bumper crop in the range of 55 million bags to 60 million bags.

Dairy—Cheese market prices surged back above $2 in September. With the fall holidays looming and schools reopening, a price increase at this time of year would not be at all surprising if prices weren’t already so high. Demand for dairy products, which grew 2.6 percent, outpaced production, which grew more than 1 percent, in the first half of 2007. Demand is expected to remain strong in the second half. Also supporting cheese prices, nonfat dry milk reached new highs of $2.07 in early September, up from lows of 85 cents less than a year ago. So far, butter prices have not followed cheese higher.

Some relief may be on the way, however. The August milk-feed price ratio was 3.24, the second straight month above the 3.0 level that typically triggers growth in milk output. Milk production rose just 1.1 percent in the first half of 2007, but is projected to be up 1.8 percent in the second half, and then climb another 2.4 percent in the first half of 2008. Cheese prices will eventually trend lower, but the shift to lower price levels may take a few months.

Oil—Soybean oil futures remain sky-high in the 37-cent-to-38-cent range. Fewer soybean acres, larger exports sales and poorer prospects for oilseed crops in other countries all are helping support prices. It appears that the shift away from hydrogenated soy oil to trans-fat-free oil blends is helping reduce domestic soy usage. While use for biodiesel will expand overall use of soybean oil in 2006-2007, lower consumption for food is expected to trim demand. In the August USDA Supply & Demand Report, soybean oil ending stocks were increased but still were expected to post a sharp year-over-year decline from 3.06 million pounds to 2.22 million pounds.

Pork—Larger-than-expected pork supplies have weighed on prices. Third-quarter pork production is expected to rise 3.2 percent above a year ago. Total 2007 pork output should be up 2.8 percent. Larger supplies and a 3-percent decline on 2007 exports are expected to help keep second-half 2007 hog prices about even with 2006. Seasonal Thanksgiving price increases look to be smaller than previously expected. The 17-pound-to-20-pound retail ham market will see the greatest rise, jumping from 63 cents per pound in early September to the upper-70-cent range in November. Twenty-pound-to-23-pound hams, also at 63 cents per pound, are expected to reach 70 cents. And 23-pound-to-27-pound hams, now at 60 cents per pound, are likely to gain only a few cents. Pork belly prices look to be steady in the mid-80-cent range through year’s end.

Poultry—In the first half of 2007, U.S. broiler output was down a larger-than-expected 2.7 percent from a year ago. Boneless skinless chicken breast averaged $1.54 per pound over the first seven months of 2007, up 38 percent from just $1.11 in 2006. But those higher prices have helped improve industry finances, and producers are cranking up output. As a result, output will recover to 18.1 billion pounds in the second half and approach 36 billion pounds for all of 2007—slightly more than last year’s record level. However, higher feed and energy costs will keep future supply increases tame. The USDA projects 2008 output to be 2.3 percent higher than in 2007.

Boneless skinless breast prices in the mid-$1.70 range in early September were up 20 cents from a month ago and at a seasonal peak. Look for boneless skinless breasts to decline by about 10 cents per month and be in the $1.40s by November. Wing prices in the upper $1.20s are unchanged from a month ago and are likely to remain in the $1.25 to $1.30 range through year’s end.

Turkey output during the first half of 2007 was up 3.2 percent from 2006. Even with the increase, a 6-percent jump in first-half exports has helped keep turkey stocks low. Prices are projected to be very near last year’s record highs in the fourth quarter. Last year, 16- to 22-pound frozen whole toms averaged 89 cents in the fourth quarter. Whole toms, already in the low-90-cent range this year, could get near last year’s record of $1.02 by November.

First-half egg production was down 1.4 percent from 2006. Egg prices also are being supported by a 25-percent year-to-date increase in exports. As a result, N.Y. large prices averaged just over $1 per dozen from January through July, up 53 percent year-to-date over 2006 levels. N.Y. large prices are projected to average $1.03 per dozen in 2007, up from nearly 72 cents in 2006. Prices in 2008 are projected to be about 93 cents.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish