Given the run-up in grain prices, one might guess pork producers might be pulling in the reins a bit. But the March 28 U.S. Department of Agriculture Hogs & Pigs report indicated that a tidal wave of pork is headed our way. The U.S. hog herd, at 65.9 million head, was up 6.5 percent from a year ago, and the winter pig crop was up 6 percent—both numbers roughly 3 percent higher than expected.
Moreover, Canadian hog imports are up 15 percent and pork output is running 12 percent ahead of 2007. Large second-quarter pork supplies will dampen the seasonal rise of hams, bellies and trimmings this spring, providing one of the few havens for commodity buyers and users this year.
Most ham markets were in the mid-50-cents per pound in April and look to hit 60 cents per pound or so this summer. Fourteen- to 16-pound bellies, which were 74 cents in March, plummeted to lows of 52 cents in early April before recovering to 60 cents.
Demand, both domestic and foreign, for U.S. pork products continues to be robust so far in 2008. U.S. pork exports in the first quarter were 14 percent above the same period in 2007. For all of 2008, exports are expected to be up 16 percent. Even so, first-quarter hog prices were more than 39 cents per pound, 14 percent below a year ago. For all of 2008, hogs are expected to be roughly 41 cents, 13 percent below 2007.
Beef—As feedlot placement rates decline this spring, ample first-half 2008 beef supplies, with a lot of Choice grade, will give way to a much tighter second half. After gaining about 1 percent in the first half, beef output could be down as much as 1.5 percent in the second half. Large beef, pork and poultry supplies helped send Choice prices sharply lower in the first quarter, compared to the same period in 2007. Year-over-year Select prices were also lower. Ample beef supplies forestalled seasonal price increases in March and April, but spring highs for steak cuts are coming fast.
Beef-packer concentration is once again a hot topic. Two years ago, the top five beef producers controlled 79 percent of the industry. That was before Brazil-based JBS entered the U.S. market last year by spending $225 million to acquire Swift & Co. JBS upped the ante in March by announcing it would buy the fourth- and fifth-largest packers, National Beef Packing and Smithfield Beef Group, for $560 and $565 million, respectively. That would give the top three suppliers 81 percent of the industry and a foreign-based supplier a 35 percent share. Welcome to the new global economy!
Coffee—The mid-March commodity market correction gutted coffee prices. May futures dropped from the mid-$1.60s in early March to $1.31 in mid-April. Growing conditions continue to be favorable in Brazil, and market psychology has swung back to focus on a large, upcoming Brazilian crop. Private forecasts for Brazil’s 2008-09 crop have averaged around 54 million bags, up 43 percent from last year’s cyclically low harvest.
Dairy—Milk production is forecast to rise 2.4 percent in 2008. While feed prices continue to rise, producers who already have expansion plans underway will continue to implement them. However, lower producer margins will eventually lead to herd contraction later in the year. Previously projected year-over-year reductions in butter and cheese prices are now expected to be small gains. The USDA 2008 butter forecast was raised from $1.27 to $1.35 per pound, compared to more than $1.34 in 2007; and block cheese was raised from $1.67 to $1.80 over the past two months, compared to nearly $1.74 in 2007.
Grain—The USDA lowered its 2008 corn-planting forecast from 90 million acres to 86 million acres, 8 percent below last year’s 93.6 million acres. U.S. corn ending stocks for 2007-08 were lowered by 155 million bushels, or 10.8 percent, because of lower acreage, larger exports and increased feed use. U.S. corn exports in 2007-08 will be up 15 percent from a year ago and represent 19 percent of our total crop. Ethanol and exports now account for nearly half of our corn crop. The 2007-08 farm price for corn was raised from $4 per bushel to $4.30 per bushel. Corn futures closed at a record high $6.05 on April 9, but have since dropped off a bit.
U.S. wheat acres should come in at 63.8 million acres, up from 60.4 million last year. Private analysts think sky-high prices could push global wheat output from about 605 million metric tons in 2007-08 to roughly 655 million in 2008-09, an 8-percent increase. That could help send deferred futures contracts lower through the summer and fall. On the flip side, tight global supplies will push 2007-08 U.S. wheat exports to 1.27 billion bushels, up 40 percent from a year ago and representing 62 percent of our wheat production.
Oil—Large U.S. and Brazilian soybean acres will help moderate, but not contain, soybean oil prices. Exports and biodiesel remain the keys for 2008. The USDA has raised its 2007-08 export forecast to 2.7 billion pounds, up sharply from its January forecast of just 1.65 billion. Year-over-year global production of all oilseeds is projected to decline in 2007-08 for the first time since 1995-96. The stocks-to-usage ratio of seven major global oilseeds is expected to remain at a historically tight 15 percent over the next two years. After hitting a record high of more than 70 cents on March 3, the market correction in mid-March took soy oil futures down to a low of more than 51 cents on March 31. Prices were back in the 60-cent range by mid-April, however.
Poultry—First-quarter broiler production will be about 9.1 billion pounds, up 5.2 percent from 2007. With weekly chick placements running 3 percent ahead of 2007, second-quarter output looks to be even larger at 9.4 billion pounds. Broiler output is forecast to slow down substantially in the second half and grow by 2.8 percent for the year. The USDA bumped the 2008 forecast price for broilers up 4.6 percent, from more than 76 cents per pound to 80 cents per pound, because of higher corn and feed prices than originally anticipated.
In 2007, broiler exports reached records in both quantity and value. Volume, at 5.8 billion pounds, was up 11 percent from 2006. But the real story was a 48-percent jump in dollars to $2.74 billion. Two-thirds of those exports were leg quarters, which averaged near 44 cents per pound in 2007, up from 28 cents per pound in 2006. With exports booming given growing overseas affluence and a weak dollar, chicken producers are actually killing birds for their dark meat.
While it would seem to make sense that high feed prices are driving chicken prices higher—and technically they are—most of the price increases are in leg quarters and wings. Boneless skinless breast markets were in the $1.40-per-pound-range in mid-April and will likely not get above $1.70 per pound this summer.