Broiler production continues to grow, up 1.8 percent from a year ago in April, despite higher feed costs. That’s mostly because higher boneless, skinless chicken-breast prices — some 50 cents per pound above a year ago — are offsetting cost increases for producers. High breast prices, along with leg-quarter prices in excess of 50 cents per pound, should mean record-large profits for poultry producers in the second half of 2013. With forecasts for sharply lower feed prices with the new harvest this coming fall, producers have every incentive to rebuild breeding flocks and further increase output later this year. The Agriculture Department projects broiler prices to jump 18 percent to $102 per hundredweight in 2013, but then to drop 10 percent to $92 in 2014.
Beef — May’s USDA cattle report showed feedlot inventories at 10.74 million head, down 3.4 percent from a year ago. But new placements in March were 15 percent above 2012. Poor wheat pastures and bad weather continue to be the catalysts for higher placements, and with no midyear USDA inventory report, we can only speculate that cattle liquidation is continuing. The longer beef producers put off expanding their herds, the longer we wait for price relief, which is now unlikely before 2017. The USDA is forecasting choice steer prices to rise 4.6 percent to $128.50 per hundredweight in 2013 and jump another 3.5 percent to $133 in 2014.
Coffee — Coffee futures hit three-year lows in late May and continue to be mired in the upper $1.20s per pound, down from $1.39 a month ago. Brazilian farmers are harvesting new-crop coffee and are still sitting on old-crop supplies from last year. After prices dropped from highs above $2 per pound, many Brazilian farmers held on to their beans, hoping for high prices to return.
Some 20 percent of Brazil’s crop from last year may still be unsold. In the U.S. arabica beans certified for delivery against IntercontinentalExchange futures contracts are up 80 percent from a year ago.
Dairy — April’s cheese output was 3.2 percent higher than a year ago and represented the highest April levels on record. High cold-storage numbers and disappointing export sales have helped block-cheese prices plummet from highs of around $1.92 per pound in April to lows of $1.71 in early June. But the spring milk “flush” has concluded in most of the country, and New Zealand Cheddar is trading above $2 per pound in global markets. Seasonally declining production could meet a surge in exports, leading to higher cheese prices this summer. Butter in cold storage was up 22 percent from a year ago in April, and exports dropped 25 percent for the month. That helped prices to move lower despite lower year-over-year production. Butter prices, which peaked at $1.79 per pound in late April, had fallen to $1.54 in early June. The USDA is forecasting dairy prices to drop roughly 3 percent in 2014, reversing the price gains of 2013. However, long-term trends for dairy prices remain bullish.
Grain, pork and vegetable oil
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Grain — Farmers got 48 percent of this year’s corn crop planted in the last three weeks of May and had 91 percent of the crop in the ground as of June 3. That compares with a five-year average of 95 percent. Corn planting after June 1 usually leads to reduced yield, and many farmers choose to switch to soybeans at this point. In May’s “World Agricultural Supply and Demand Estimates” report, the USDA discounted the effects of delayed planting and forecast the 2012-2013 corn crop at 14.14 billion bushels, 31 percent above last year’s drought-reduced crop. However, the USDA will likely drop that forecast in June’s report. Strong export gains and problems with both winter and spring wheat crops have supported wheat futures in the $6.80 to $7.10 per bushel range for the past two months.
Pork — Last month, Smithfield Foods said it had been purchased by China’s Shuanghui International Holdings for $4.7 billion. The purchase is expected to be approved unless the Committee on Foreign Investment can prove that transferring pig technology is a threat to national security. American-made imports should help Shuanghui reclaim Chinese consumers, whose confidence has been shattered in the wake of food-safety disasters.
Pork supplies typically tighten in late spring, when both animal numbers and carcass weights decline seasonally. Summer heat — depending on how severe — can accentuate or soften those weight declines. Currently, pork in cold storage is 5.9 percent higher than a year ago and 17.7 percent higher than the five-year average. Ham inventories are 12.5 percent above 2012 and 34.6 percent higher than the five-year average. Pork-belly inventories remain tight, and record-high belly prices have helped push producer profits into the black. The foodservice mantra of “bacon on everything” is likely to blame. The USDA projects that hog prices in 2013 will average just $59 per hundredweight, 3.1 percent below a year ago. 2014 projections are even lower at $58.
Vegetable oil — Soy-oil futures have been a picture of stability in recent months, with a trading range of 48 cents to 50 cents per pound since April 1. U.S. soybean-oil stocks, currently very large, are projected to decline sharply for the balance of the year. In world markets, however, palm oil is plentiful and trading at a deep discount to soy oil. Also, a large South American soybean crop should lead to an increase in soy-oil exports. Both of those factors should help put a cap on U.S. soy-oil exports. Barring a major U.S. drought this summer, soy-oil prices are expected to trend lower, possibly reaching a major cyclical low in the fourth quarter before a projected increase in biodiesel usage sends prices higher again in 2014.
John T. Barone is president of Market Vision Inc. in Fairfield, N.J., and can be reached for comment at [email protected] .