Commodity Market Outlook

Jim Hilker
Department of Agricultural Economics
Michigan State University

Market Outlook Reports
for May 9, 2008

Table of Contents

CORN Analysis Balance Sheet
WHEAT Analysis Balance Sheet
SOYBEANS Analysis Balance Sheet
CATTLE Analysis
HOGS Analysis
DAIRY Analysis
POULTRY Analysis
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CORN

On May 9, 2008 the USDA-WASDE released their monthly Supply/Demand updates. Not only did they update the 2007-08 marketing year, but for the first time they gave projections for 2008-09 marketing year. Obviously, we have most all of the 2008 growing season yet to go, but it is important to get the best information to date out on the table. That way we can make adjustment as we go for weekly indicators like the planting progress reports and later on the weekly crop condition reports.

There was only one change to the U.S. corn 2007-08 estimates, but it is significant. The updated estimates are in Table 1 below. The USDA lowered the corn used for ethanol estimate by 100 million bushels, 3% of the total, but a 10% reduction in the 2007-08 projected increase. It appears that there has been a bit of a slow down in both plant completions and capacity use. This makes since with the lower, yet still profitable, returns. The decrease in use than increased estimated ending stocks by 100 million bushels, a bit extra for next year.

The USDA used the March 2008 Planting Intentions Report for the corn planted projection in their 2008-09 projections. They really have no choice, but relative prices have changed enough since than that we may plant more corn, but on the other hand, the holdup in planting progress to date may not allow that. The USDA used a 2008 corn yield of 153.9, a bushel under their trend yield due to the slowness in plantings. If this happens, we will harvest the second biggest corn crop on record, only smaller than last year's, and the last six years will have shown us our largest six crops. Yes, we are a long way from being there.

On the use side, the USDA expects feed usage to drop sharply as shown below. This is due to expectation of a fairly sharp cutback in pork production beginning this next fall, due to massive losses, and 25% more distiller's grain being available for feed as we will discuss. Corn used for ethanol is expected to be up to 4000 billion bushels, a 25% increase from this year, which is where we get 25% more DGS. Exports are expected to drop sharply from this year, but only back to the previous two year's levels. The drop in exports are due to an expected increase in world coarse grains, continued high prices, and a recovery in world wheat production which will mean less corn needed to replace feed wheat.

Add the projected use up, and it comes out to more than the expected second biggest U.S. corn crop on record. As see below, this would put 2008-09 projected corn stocks at 6% of use, extremely tight. And is why the USDA is projecting an average corn price of $5.50 for 2008-09. The reason new crop corn is higher than that now is the risk we may not get the expected crop. A gentle reminder, new crop corn prices over $5.80 for some of your crop is good no matter what the price turns out to be.

On the international side, coarse grain production is expected to grow. First off, in appears Brazil crop this year is about 120 million bushels larger than previously thought. On top of that, the world coarse grain crop is expected to grow substantially as we see recovery in Europe and the former soviet union countries. BUT, we expect rest of world use to grow even faster than production. The world already tight coarse grain stocks are expected to drop another 6%. Bottom line, the world needs at least a decent coarse grain crop, or something has to give.

TABLE 1
SUPPLY/DEMAND BALANCE SHEET FOR CORN

2003-04
2004-05
2005-06
2006-07		 Estimated
2007-08		 Projected
2008-09
(Million Acres)
Acres Planted 78.6 80.9 81.8 78.3 93.6 86.0
Acres Harvested 70.9 73.6 75.1 70.6 86.5 78.8
   Bu./Harvested Acre 142.2 160.4 148.0 149.1 151.1 153.9
(Million Bushels)
Beginning Stocks 1087 958 2114 1967 1304 1363
Production 10089 11807 11114 10535 13074 12125
Imports        14         11        9        12        15        15
      Total Supply 11190 12776 13237 12514 14393 13523
Use:            

   Feed and Residual
   Food, Seed and Ind.
    Ethanol for Fuel

5798
2537
1168

 6158
2686
1323

6155
2981
1603

5598
3488
2117

 6150
4360
3000

5300
5360
4000
      Total Domestic 8335 8844 9136 9086 10510 10660
   Exports 1897 1818 2134 2125 2500 2100
      Total Use 10232 10662 11270 11210 13010 12760
Ending Stocks 958 2114 1967 1304 1383 763
Ending Stocks,  % of Use 9.4 19.8 17.5 11.6 10.6 6.0
U.S. Loan Rate $1.98 $1.95 $1.95 $1.95 $1.95 $1.95
U.S. Season Average
   Farm Price, $/Bu.
$2.42
$2.06


$2.00


$3.04
$4.25
$5.50
Source:  USDA and Jim Hilker

 

 

WHEAT

The world wheat situation is like corn in that we have to have a decent world crop, or again, something will have to give. We are at historically tight world stocks. But unlike corn, a bigger portion of the high wheat prices are do to crop shortfalls versus sharply increased demand, but growing world demand does play a significant role. The USDA only made minor changes in the estimates for 2007-08 as the marketing year ends at the end of May.

However, the USDA did release the first survey based winter wheat production estimates for the 2008 crop. They estimated the winter wheat crop would be 1.778 billion bushels, up from last year's 1.515 billion and the 2006 1.298 billion bushels. The increase in the production estimate came from both an increase in projected harvested acres and a higher projected yield. Projected yield are up for most states other than Texas, which is being hit sharply by dry weather. Michigan is projected to harvest 710,000 acres of wheat, up from last year's 540,000 acres. Michigan's wheat yield is projected to be 69 bu/ac, up from the 66 bu/ac last year, and near trend, but below our best years.

The USDA expects total use to be down in total for 2008-09, but that is due totally to an expected drop in exports. Domestic use is expected grow as shown in Table 2 below. Mostly due to a recover in wheat used for feed. The relative price of wheat to corn is expected to bring more feeding of wheat. The increase in expected production and lower use increases expected ending stocks. While this will take the pressure off prices, they will not go back to yester years low levels. And agin, this crop is not in.

The world crop is expected to recover to a record level, but that is based on normal yields. World ending stocks are expected to grow, but only back to the previous year's level. At this point Europe and the FSU are looking okay, the southern hemisphere wheat crop is a long way off.






TABLE 2
SUPPLY/DEMAND BALANCE SHEET FOR WHEAT

2003-04
2004-05
2005-06
2006-07		 Estimated
2007-08		 Projected
2008-09
(Million Acres)
Acres Planted 62.1 59.7 57.2 57.3 60.4 63.8
Acres Harvested 53.1 50.0 50.1 46.8 51.0 56.3
   Bu./Harvested Acre 44.2 43.2 42.0 38.7 40.5 42.8
(Million Bushels)
Beginning Stocks 491 546 540 571 456 239
Production 2345 2158 2105 1812 2067 2392
Imports    68 70 81 122 95 100
      Total Supply 2904 2775 2726 2505 2618 2732
Use:
   Food
   Seed
   Feed and Residual
907
80
  212
910
78
 182
915
78
160
934
81
125
950
88
60
960
84
230
      Total Domestic 1194 1170 1152 1141 1098 1274
   Exports 1159 1066 1003 909 1280 975
      Total Use 2353 2236 2155 2049 2378 2249
Ending Stocks 546 540 571 456 239 483
Ending Stocks,  % of Use 23.2 24.1 26.5 22.2 10.1 21.5
U.S. Loan Rate $2.80 $2.75 $2.75 $2.75 $2.75 $2.75
Season Average Farm Price
  U.S.  $/Bu.
Michigan $/Bu.
$3.40
3.30
$3.40
2.95
$3.42
3.05
$4.26
3.40
$6.55
5.30
$7.35
6.20
Source:  USDA and Jim Hilker
SOYBEANS

 

The USDA increased 2007-08 U.S. soybean exports in their latest report by 15 million bushels. This lowered the already extremely tight U.S. 2007-08 soybean stocks from 160 million bushels to 145 million bushels. The farmer/government disputes in Argentina seem to be helping this year's soybean exports, but those beans are still there.

The USDA again used the March planting intentions report for their 2008 soybean projected plantings. They used the a trend yield for 2008. This would increase the projected U.S. soybean production sharply, as shown in Table 3 below. However, use is expected to grow as well, leaving projected 2008-09 soybean stocks at a still tight 185 million bushels. I was a bit surprised at the export projections given world supplies of soybeans should be adequate. The USDA is projecting an average annual 2008-09 price of $11.25, near to above new crop prices being offered around the country. I am a bit less optimistic, IF we get the crop in this fall.

The USDA will not give 2008-09 world supply/demand estimates for soybean until next month. However, there is no reason to believe they will not be adequate give projected 2007-08 world ending stocks. Prices are good.

 

TABLE 3
SUPPLY/DEMAND BALANCE SHEET FOR SOYBEANS

2003-04
2004-05
2005-06		 Estimated
2006-07		 Projected
2007-08		 Hilker
2008-09
(Million Acres)
Acres Planted 73.4 75.2 72.0 75.5 63.6 74.8
Acres Harvested 72.5 74.0 71.3 74.6 62.8 73.8
   Bu./Harvested Acre 33.9 42.2 43.0 42.7 41.2 42.1
(Million Bushels)
Beginning Stocks 178 112 256 449 574 145
Production 2454 3124 3063 3188 2585 3105
Imports 6 6 3 9 10 8
      Total Supply 2638 3242 3322 3647 3169 3258
Use:
   Crushings
   Exports
   Seed, Feed & Residuals
1530
885
  111
1696
1097
  193
1739
940
  194
1806
1118
  148
1840
1090
  94
1850
1050
  172
      Total Use 2526 2986 2873 3073 3024 3073
Ending Stocks 112 256 449 574 145 185
Ending Stocks,  % of Use 4.4 8.6 15.6 18.7 4.8 6.0
U.S. Loan Rate $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
U.S. Season Average
   Farm Price, $/Bu.
$7.34
$5.74
$5.66
$6.43
$10.00
$11.25
Source:  USDA and Jim Hilker.

 

 

CATTLE

Beef production is up 2.4% year to date, and much of that is due to higher weights than a year ago. Slaughter is up only 1.1%. Weekly heifer slaughter is up a bit, cow slaughter down a bit, i.e., we are not expanding, but we are also probably not shrinking our breeding numbers.

The USDA is expecting second and third quarter beef production to be up, but having a fairly sharp drop in the fourth quarter. This will leave annual production for 2008 up marginally, but per capita consumption down as population continue to grow and exports take more of our production.

The USDA is expecting a drop in first quarter 2009 beef production relative to 2008. The same is true for total 2009 beef production. And again, with more people to divide it up among and higher amounts exported, per capita U.S. consumption will drop about a pound and a half.



 

HOGS

 

Weekly hog slaughter and production is running about 9.4% above year ago levels. Year to date pork production is up 10.9%, a bit more than slaughter. Given this, it is amazing to see the hog prices as high as they are. However, high feed prices are still causing a lot of red ink.

The USDA is expecting 2008 annual pork production to be up 7.3% relative to 2007. They expect the third quarter to continue being way above 2007, than fourth quarter pork production to be about the same as 2007, but 2007 was huge. Pork production in 2009 is expected to drop off from 2008's 23,483 million pounds to 22,930 million pounds.

Third quarter hog prices are expected to average $46/cwt and fourth quarter prices are expected to average $42/cwt. The first quarter of 2009 is expected to bring hog prices in the range of $44-49/cwt, with the annual average 2009 price being in the range of $46-50/cwt. Unfortunately, we expect costs/cwt to be in the fifties.





DAIRY  
Christopher Wolf

See Annual Outlook