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Monday, August 18, 2014

Rising corn tide floats proteins' boats

by Kerry Halladay, Associate Editor

As with July, the August World Agricultural Supply and Demand Estimates (WASDE) report showed most things up from previous estimates. Production estimates for beef, the other major competing proteins, corn, and soybeans were all up for 2014, and up for most in 2015. Most of the increase in meat production cited the increases in corn leading to stimulus of herd and flock expansion, as well as heavier carcass weights.

Beef production estimates for 2014 rose 23 million pounds (mp) to 24.63 billion pounds (bp) between July and August’s reports. For 2015, however, estimates retracted by 50 mp to 24.39 bp, with the report citing slow placements which heavier carcass weights can’t overcome as the cause.

Trade in both categories for both years increased. Import estimates for 2014 rose to 2.58 bp and to 2.6 bp for 2015. The report cited the sharp pace of grinding meat import and U.S. demand for ground beef as reasoning. Export estimates rose to 2.62 bp for 2014—which, if realized, would make 2014 a net export year by volume—and rose 100 mp to 2.53 bp for 2015.

The increased export expectations more that wiped out the projected production gains for beef, leaving availability a weak stagnant between the two years. Availability estimates for 2014 stood at 54.2 pounds of beef per person, but declined a fifth of a pound to 53.4 pounds per person for 2015.

Pork similarly saw repeated increases in its estimates. Production estimates for 2014 rose to 22.79 bp and rose to 23.29 bp for 2015. Trade estimates were up also for pork, though not as high in either category as in beef. Import estimates increased 20 mp for 2014, bringing the estimate to 947 mp, and rose 30 mp in 2015 to 920 mp. Pork export estimates increased by about 60 mp for both years, to 5.07 bp in 2014 and to 5.15 bp in 2015. Export increases were credited to increased demand abroad despite the closure of the Russian market.

As with beef and pork, the increased estimates for corn production increased the predicted production rates for chicken. Estimates for 2014’s production increased by 164 mp to 37.99 bp, and estimates for 2015 rose 30 mp to 38.92 bp. Trade estimates for chicken were not as good as for beef and pork. Imports remained basically static with earlier estimates, but export estimates dropped over 130 mp each for 2014 and 2015. These decreases were attributed to the Russian ban as chicken from the U.S. was one of the targeted items.

Corn and soybeans As mentioned, estimates for corn production increased dramatically. And all of this came solely from increased yield estimates. This WASDE was the first one that had weekly condition data from which to base its estimates, and the result was impressive. The yield estimate on the 2014/2015 corn crop jumped from 165.3 bushels per acre (bpa) in July to 167.4 bpa in August. Though this is heading in the right direction, analyst estimates still expect yields to go higher.

“Analysts polled by Reuters on average indicated that they expect corn yields for the 2014/15 marketing year to be about 170.1 bushels per acre, with some analysts pegging yields as high as 174.8 bushels per acre,” reported Steve Meyer and Len Steiner of the CME Daily Livestock Report. Andrew Gottschalk of Hedgers Edge had much the same to say.

“The USDA kept their corn yield below 168 bpa, as was expected. We would expect that the final yield will be closer to 172-174 bpa which would leave ending corn stocks near 2.1-2.3 billion bushels versus the 1.8 billion estimated in yesterday’s report provided positive growing conditions are maintained.”

The increased production resulting from this 2.1 bpa yield increase was substantial and cascaded down the corn estimates. Overall production broke above the 14 billion bushel mark with 14.03 bb. Imports stayed steady at 30 million bushels (mb) but exports increased by 25 mb to 1.73 bb. The increased supply has increased expectation of feed and residual uses, as well as ethanol uses, both only up 25 mb each. Despite the increased domestic uses, estimates still peg ending stocks as up 100 mb to 13.44 bb. As such, predicted annual average farm price slipped another 10 cents on either side of the range to $3.55-4.25 per bushel.

The U.S.’ predicted corn production increases led the world’s corn production increases, with a little help from the EU. The low prices of U.S. corn are proving attractive to international importers and are expected to support international demand.

Soybean estimates played a far distant second fiddle to their more popular feed grain compatriot. Yield estimates for soybeans increased, but only slightly. At an estimated 45.4 bpa (up from 45.2 bpa), production estimates only increased by 16 mb. This increase was carried over directly into the estimates of ending stocks with little else affected. The slight increase in projected supply reduced the estimated annual average farm price for soybeans to $9.35-11.35 per bushel.

“The soybean yield at 45.4 bpa is likely to be increased also with a yield at 46 bpa likely. The latter yield could leave ending soybean stocks near 500 million bushels,” said Gottschalk. “This would exceed the previous record established in the 2005/06 marketing year when ending stocks were 449 million bushels.” – Kerry Halladay, WLJ Editor

 
 


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