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Corn, Soybean Stock Report Steady

USDA’s February Crop Production and World Supply and Demand Estimates (WASDE) reports included no changes for U.S. corn and soybean supplies, but it did increase corn usage for ethanol and food, seed and industrial purposes by 50 million and 20 million bushels, respectively. The former is in response to continuing increases in ethanol output and higher oil prices. The latter is mainly due to higher sugar prices that will increase the use of high fructose corn syrup (HFCS).

The net impact was to push projected year-end stocks to 675 million bushels, only 5% of total usage. That stocks:use ratio matches the level of 1995-96, the previous lowest on record. Put another way, there will be just less than 19 days’ worth of corn in inventory at the end of the crop year. I am relatively certain that will mean that corn will be hard to find in some localities come late summer, especially if harvest is delayed at all. I urge hog producers to get 45-60 days’ supply of corn in hand soon. That task will become more difficult if any problems develop during planting season.

The three contracts for the remainder of the 2010-2011 crop year are now all above $7/bu. and show little sign of running out of steam yet. I can see little that will force corn lower until it is clear we have a 2011 crop planted and off to a good start.

The soybean situation is tight as well, with a record low year-end stock:use ratio of 4.2% now projected. USDA played with the South American numbers a bit, but the net was no change in the combined Brazil-Argentina crop. There are still a lot of soybeans booked for export (up 33% from this time last year), but actual shipments have slowed in recent weeks due to higher prices and the pending South American harvest.

But the combination of factors have now pushed projected breakeven hog production costs above $85/cwt., carcass, with some late summer months bumping $90/cwt. (see Figure 1). The good news, of course, is that four Lean Hogs futures contracts are now above $100/cwt., carcass, and all but one 2011 contract are above $85/cwt. That means average producers can lock in profits for all but October, November and December, with the average for the year being $9.18/head, not far below last year’s average of $10.25.

The Department of Commerce released product-weight export figures for December, and the news is once again very good for the pork industry. December pork shipments totaled 135,610 metric tons (149,171 tons), 11.1% higher than one year ago. That figure brings 2010 exports to 1.437 million metric tons (1,581 tons), 2.8% more than one year ago and the second-highest annual total on record.

The big story, though, was the value of 2010 exports. Higher cut prices worked against U.S. export quantities virtually all year, but the growth of prices more than offset the declines in export quantities. The total value of pork exports in December was 19.2% higher than last year and total 2011 value reached $4.082 billion, 14.0% more than 2010 and only 0.8% below the record of 2008.

December was also a very good month for pork variety meat exports. Shipments were 21% higher vs. one year ago and brought year-to-date exports to a new annual record of 442,138 metric tons (486,352 tons), 4.3% higher than in 2010. Lower prices had some impact on the total value of variety meat exports; however, as the 2011 total of $524.5 million was only 0.6% higher than in 2010 and well below the record of $558.7 million in 2008. For a year-end wrap up of pork exports, see the U.S. Meat Export Federation’s column below.

Hog Operations, Owners Down
Finally, USDA’s Farms, Land in Farms and Livestock Operations report, released on Thursday, showed a decline of 2,350 hog operations and 2,840 hog operations by ownership in 2010. The difference in those two numbers is that the first figure (Table 1) defines a hog operation as any farm upon which there were hogs at some time during the year. That number counts contract growing operations as separate entities. The second number (Table 2) counts only owners, so several contract growing operations may be lumped under one owner. The larger decline in owners than in operations indicates consolidation among operations that utilize contract growing arrangements.

Note that ownership operations with 1,000 to 5,000 head grew in number and gained market share in 2010. Ditto for those with 10,000-19,999 head, although the number and share of 5,000-9,999-head operations fell. We think the general gains of these mid-sized operations, however, indicate the comparative advantage that has accrued to operations that produce a significant portion of their feed supplies.

Higher feed costs, fewer hogs and declining hog operations – and especially hog operation owners -- do not strike me as an effective way to “repopulate rural America.” I hope our policy makers study these numbers.

Happy Valentine’s Day!
If that is news to some of you male readers, you still have time to save your life, relationship, net worth – you pick it. I am travelling today, so I fixed my wife and daughter a nice breakfast this morning. They reported it definitely edible!

Along these lines, I have to tell you about an item that sold in the auction at the Missouri Pork Expo last week. It was an advertisement from, I’m guessing from the couple’s clothing, the 1940s that showed a young attractive couple looking at each other with goo-goo eyes above the caption “They’re young. They’re in love. They eat lard!” Talk about romantic! Love and lard are two words that really go together in my mind. Not! Give your honey a card like that today and no telling what the consequences might be! Boy, if we could just get that love and lard relationship rekindled in the eyes of today’s consumers. Sounds a bit strange, doesn’t it? Let’s not go there.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.