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CME: Strong Beef & Pork Demand This Autumn

07 October 2011

US - Private market analysts are adjusting their corn yield estimates based on actual yield figures as we approach next Wednesday’s USDA Crop Production and World Agricultural Supply and Demand (WASDE) reports, write Steve Meyer and Len Steiner.

INTL FC Stone raised its corn yield forecast from 146.3 bushels per acre to 148.7 while Informa Economics reduced its forecast from a comparatively robust 151.0 bushels per acre to 149.5. USDA’s September estimate was 148.1 bushels per acre so it appears for now that the private companies are zeroing in on levels already suggested by USDA.

INTL FC Stone now forecasts a corn crop of 12.553 billion bushels. Informa pegs that number at 12.519 billion bushels.

The chart below puts the USDA September estimate in some historical context. It is the last observation shown in the graph and is clearly below both the 1960-2010 and 1996-2010 trends.

USDA’s September forecast would represent the largest deviation from the 1996-2010 trend since 2002 but would be slightly smaller than the 2002 deviation from the longer-term trend. We are hearing mixed reports on actual corn yields.

Much of the talk in Iowa is that yields are better than expected but much of what we hear from east of the Mississippi River is that yields are disappointing. It is definitely a mixed bag reflecting, in general, the dry conditions seen since 1 July. It all depends on whether you caught one or more of those scattered showers in July and August.

There is no corn SURPLUS. We capitalised that word because we could hardly believe it when someone asked “In light of the higher stocks reported last week, does that mean there is now a surplus of corn?”

If surplus means more than what is absolutely necessary, perhaps there is one. But our idea of a surplus is when there is MUCH more available than is absolutely necessary and last week’s report in no way suggests that is the case for corn.

While the yearend stocks of 1.128 billion bushels for the 2010-2011 crop year are indeed higher than expected, the extra 208 million bushels hardly constitute a surplus and, after allowing for some changes in usage in the coming year, do not create a “surplus”: next year either.

The chart below shows our estimates of usages in the coming year and they put 2012 carryout stocks at just 827 million bushels, only 6.4 per cent of total usage.

Though larger than earlier predicted, that number is still the second lowest ever! That’s no “surplus” to say the least!

Both beef and pork have continued their strong fall demand runs with both, in fact, increasing in recent weeks. That’s the way we read year-on-year price increases at a time of generally higher output.

The charts below are updated versions of ones that we last included just after the beginning of 2011.

Beef production has been generally higher than year-ago levels in most weeks of 2011. The exceptions were late spring and August through mid-September.

But the only challenge for the Choice beef cutout this year was encountered in April and May and in that period, prices were still five to 10 per cent higher than one year earlier.

While year-on-year output change has been bouncing around zero, year-on-year price change has for the most part been bouncing around 15 per cent.

And that follows 2010 in which the same kind of relationship prevailed except, of course, during the fourth quarter when both production and output were far above year-earlier levels.

The same conclusions can be drawn for pork even though the chart, at first glance, may not appear as impressive.

But note the vertical scale of the pork chart. This year’s percentage changes in price look small simply because they are compared to the almost ridiculous levels of 2010.

Like beef production, pork production has generally stayed near 2010 levels for most of this year while prices have been anywhere from 1.2 to 29.7 per cent higher — and NEVER lower for a week.

Since mid-August, output has been larger than last year and prices have gained on the 2010 level in every week.


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