Download The Complete Report

Pork/Hogs

First-Quarter Wholesale-to-Retail Spread Record-Wide

The full set of data that is now available for the first quarter of 2012, is useful in explaining important hog and pork market dynamics of the quarter, as well as in indicating potential market direction as the markets move into summer. As a whole, the data suggest that of all the players in the pork market chain—hog producers, packer/processors, wholesalers, retailers, and consumers—the only ones left smiling by the price and demand/supply metrics of first quarter may be pork retailers. First-quarter retail pork prices finished at $3.49 per pound, 6 percent higher than a year ago and the highest first-quarter retail price on record. Record retail prices reflected, in part, robust first-quarter U.S. exports, which were 15.8 percent higher than a year ago. Strong exports—23 percent of first-quarter commercial pork production—left U.S. per capita disappearance almost 1 percent below the first quarter of 2011. Tighter first-quarter domestic supplies and higher prices for competing animal proteins likely supported record retail prices. At the wholesale level, the situation remains quite different. Wholesale pork prices have lagged year-earlier prices from late January to the present. First-quarter USDA wholesale primal cutout values were 5 percent below first-quarter 2011.

Strong retail prices combined with weak wholesale values to yield the widest firstquarter wholesale-retail spread ever: $2.03 per pound. While it is possible that soft wholesale prices reflect slower forward bookings for export, it is more likely that retailers are defending their spread by favoring strong returns over sales volumes. Higher first-quarter retail prices for beef (+9 percent) and for chicken (+5 percent) would accommodate a retail strategy that places less emphasis on maximizing pork sales volume. Such a strategy could lower wholesale pork demand.

Second-quarter 2012 commercial pork production is expected to be 5.5 billion pounds, 2.8 percent higher than a year ago. Increased April-June pork production derives from year-over-year larger fall and winter pig crops and heavier estimated dressed weights. Second-quarter prices for live equivalent 51-52 percent lean hogs are expected to average $62-$64 per cwt, 8.4 percent lower than a year ago. Prices for 2012 are expected to be about 6 percent lower than a year ago.

Commercial Pork Production and U.S. Pork Exports To Increase Moderately in 2013

In 2013, moderate increases in farrowings and continued strong productivity gains are expected to yield an annual pork production level that is about 2.3 percent above 2012. Commercial pork production is expected to be 23.8 billion pounds. Higher estimates for average dressed weights as a result of lower feed costs contribute to the higher production forecast. Hog prices next year are expected to be $57-$61 per cwt, about 2.7 percent below 2012.

Foreign demand for U.S. pork products will continue to be an important market focus in 2013. Lower U.S. pork prices next year, together with continued global economic growth will, in all likelihood, support continued strong exports. Next year USDA anticipates that 22.7 percent of commercial pork production will be exported, versus almost 23 percent this year. Total U.S. pork exports for 2013 are forecast at 5.4 billion pounds, about unchanged from this year. As is almost always the case, over two-thirds of U.S. exports in 2013 are expected to go to U.S. North American Free Trade Agreement (NAFTA) partners, Canada and Mexico, and to Japan. Japan is expected to remain—solidly—the no. 1foreign destination for U.S. pork exports in 2013.

U.S. pork imports next year are expected to be in line with 2012 estimates, or about 810 million pounds. In the past, the United States has imported about 4.3 percent of its annual pork disappearance; next year should be no different. U.S. imports of live swine next year are likely to be somewhat higher than forecasts for 2012: 5.87 million head in 2013, versus 5.78 million head expected this year, due mostly to expectations of higher Canadian production as indicated by stronger breeding inventories in Manitoba.

In 2013, per capita pork disappearance is expected to be year-over-year higher in each quarter. For the year, per capita pork disappearance is expected to be 47.2 pounds, 2.1 percent above 2012. For a demand inelastic commodity such as pork, small increases in per capita disappearance are often accompanied by disproportionately lower prices up and down the supply chain. Retail pork prices will likely average about $3.40 per pound, or about 3 percent below forecast retail prices for 2012.

First-Quarter Exports Up Sharply

First quarter U.S. pork exports were 1.4 billion pounds, 15.8 percent ahead of last year. The five strongest markets for U.S. pork are shown in the table below. Firstquarter exports to China likely represent the tail end of deliveries of large purchases made in 2011. The USDA’s Foreign Agricultural Service expects 2012 China’s pork imports from all sources to decline by 14 percent. See http://www.fas.usda.gov/dlp/circular/2012/livestock_0412.pdf. USDA also forecasts a 14-percent reduction in South Korea’s imports in 2012, from all sources, as the pork sector recovers steadily from 2010-11 outbreaks of foot and mouth disease. The Government of South Korea recently announced that it would limit the initial 70,000 metric tons (MT) duty free tariff rate quota (TRQ) for fresh/frozen pork bellies announced for the period April-June to 20,000 MT.

Special Article

U.S. Pork Industry Moving Toward Open Sow Housing as an Alternative to Gestation Crates

Introduction

In recent years, a growing number of major U.S. companies that demand and supply pork products have adopted strategies that explicitly move away from direct or indirect use of gestation crates in pork production. McDonald’s Corp.—a major buyer of pork products—and thus an indirect user of gestation crates—recently announced that it would require its pork suppliers to submit plans by May 2012 that transition suppliers’ production facilities from use of gestation crates, to group sow housing. McDonald’s thus joins other major U.S. buyers of pork products along with major U.S and Canadian pork-producing companies, in adopting business models that incorporate group sow housing in pork production. Pork users and pork producers appear to be making this move in response to a developing public perception that crating sows during gestation is detrimental to the welfare of the animal.

The Current U.S. Hog Production System: Gestation Crates

For the last 30 years, typical U.S. hog production has employed individual crates to house pregnant females during gestation. The typical gestation crate measures 7 feet by 2 feet, or 14 square feet, and was adopted by the industry to overcome innate hierarchical swine behavior. Female swine, in particular, tend toward aggressive behavior to establish dominance when they are housed in groups. This means that freely moving pregnant swine tend to fight until dominance is established. Such aggression can cause serious injury to less-dominant females and to unborn piglets. When the females are crated, aggression and threat of injury are minimized. Gestation crates also facilitate individualized animal care, feeding, and monitoring.

The downside of gestation crates is the severe constraint on movement that the 14- square-foot crate imposes. While the crate affords the pregnant female some limited side-to-side and back-and-forth movement, it totally prevents the animal from turning itself around. The animal welfare questions that are raised by the movement limitations of gestation crates have motivated the industry to adopt a different means of pork production that allows the pregnant animal freedom of movement.

Group Sow Housing as an Alternative to Gestation Crates

A production model based on group sow housing places pregnant swine in open pens that allow them free movement. An accurate description of a “typical” group sow housing barn is elusive because no single type has yet evolved in the United States. Consequently, there is wide variation in design characteristics of existing grouped housing units. For example, the number of animals grouped in one pen can vary anywhere from 5 animals to more than 100, depending on per-animal space allocations. The groups themselves can be “static,” meaning that all the animals in a pen enter it together when the group is formed, or “dynamic,” meaning that animals enter and exit the group. The size of the groups and the per-animal space allocations often determine the method employed to feed the animals.

Feeding the animals in a group setting presents serious challenges given the tendency of swine toward aggression, particularly at feeding time. There are various methods available to feed the animals in a group setting. Three of the most common are electronic sow feeders, where the animals are trained to line up to enter feeding stations from which individualized rations are dispensed, based on information read from chips implanted in the animal’s ear; trickle feeding, where feed is delivered over a period of 15 to 30 minutes to troughs or on the floor of the pen; and free-stall feeding, where the animal enters a stall, often with a door closing upon entry, allowing her protection from aggressive pen mates during feeding. Each feeding method has a different set of cost, space, and management requirements, which together interact with group size, per animal space allocations, and numerous other physical characteristics of the unit’s design to affect the animals’ wellbeing.

Gestation Crates and Group Sow Housing: What Do Comparative Studies Show?

There are now many comparative studies in the animal science literature that document differences in production performance, behavior, and welfare indications between animals housed in gestation crates and those housed in pens. One of the most often-cited studies was carried out by McGlone et al. (2004). This study aggregated research findings from 35 previous comparative studies to determine whether sow behavior, performance, or physiology differed between the two housing types. The study tested for statistical differences between farrowing rates; pigs born per litter; oral, nasal, and facial behaviors; and cortisol blood levels in gestating animals. The research results, which are summarized in the table below, indicate that the differences between the means of measured variables were not statistically significant. That is, none of measures were significantly (P < 0.05) influenced by sow housing type. The study concludes that “gestation stalls or wellmanaged pens generally … produced similar states of welfare for pregnant [females] in terms of physiology, behavior performance, and health.”

This study also addresses two issues important in comparing the different systems. The study indicates that sow productivity—as measured by farrowing rates and pigs per litter—is not affected by housing type. This is good news to for U.S. pork producers, some of whom equate group housing with lower female productivity and lower asset returns. More important perhaps, the study identifies the producer’s animal handling/management skills as the key to maintaining productivity of sows housed in pens.

With respect to concerns about the effects of gestation crate housing on animal welfare, neither McGlone et al., nor current animal science research generally provide clear, empirical evidence that switching to group housing improves the welfare of pregnant female swine. The literature is supportive of the contention that sow/gilt welfare is not determined by housing type. “In other words proper design of stalls and pens can result in equivalent animal performance and welfare outcomes, although the design features for achieving that objective will differ. Therefore, it’s not clear that simply switching to group housing will inherently improve or reduce sow performance or welfare.”

The Group Sow Housing Model Often Employs Gestation Crates To Assure Swine Safety

As the sector continues to evaluate sow housing options, it will be important not to overlook two crucial safety features of the group sow housing model: First, the group sow housing model often does not exclude the usage of sow crates. In current practice in both the European Union and the United States, newly bred sows are crated for around 30 days to insure proper embryo implantation. Moreover, the pregnant females are typically crated for a 5-day period just prior to farrowing. Pregnant females are thus removed from group pens at periods in gestation when they are most vulnerable to aggression and injury. Second, both production models—gestation crate-based and group sow housing—move pregnant females into farrowing crates just prior to the birth of the litter.

The farrowing crate— different in dimension and design from the gestation crate—is designed to allow the female to position herself to nurse the litter. The sow’s movement is restricted to prevent injury to the litter, such as crushing or smothering . Crate use in the group sow housing model implies that the female spends about 35 percent of the year—4 months—in individual housing and the balance of the year in a group setting. Under a gestation crate system of production, the animal is crated 100 percent of the time.

Download The Complete Reort

Corn Planting Progress and Emergence Raise Yield Prospects for 2012/13

As of the same date, 32 percent of the expected crop had emerged, compared with an average of 13 percent in 2007-11 and 6 percent last year. Early planting boosts the projected yield for 2012/13 to 166.0 bushels per acre, compared with last year’s weather-reduced yield of 147.2. Rapid planting and emergence is also likely to affect supplies during the last quarter of the 2011/12 marketing year, resulting in reduced prospects for the June-August quarter feed and residual disappearance.

Corn production for 2012/13 is projected at a record high 14,790 million bushels, 20 percent over last year’s crop. With carrying of 851 million bushels and imports of 15 million, supplies are projected at 15,656 million bushels. Total use year-to-year is projected to gain 1,120 million bushels on higher feed and residual and export demand. Ending stocks for 2012/13 are expected to be up 1,030 million bushels.

Record foreign coarse grain production and the huge US corn crop boost 2012/13 global coarse grain supplies to record levels; however, with foreign coarse grain use increasing faster than production and less competition from low-priced wheat, prospects for US corn and sorghum exports are also raised.

Download The Complete Report

Market Comments

One of the arguments for the continued weakness in the pork market has been that prices at the consumer level have not adjusted quickly enough to clear the market. While export shipments have been strong, at least through Q1, lower prices have been needed to stimulate volume movement. More recently, however, the conversation among market participants has focused on the willingness of domestic retailers to lower prices in order to clear the perceived supply backlog. Stickiness of retail prices, or price rigidity, is an old subject in economics. Retailers and foodservice operators are reluctant to change prices often, both because of how they perceive consumer responses to such changes but also because of the costs inherent in changing prices often. Prices tend to be more sticky at the foodservice level. This is understandable considering the expense in changing menus, revising in-store promos as well as the long term established marketing calendars that are tied to advertising campaigns. Large foodservice chains provide exceptional efficiencies of scale but they also have significant bureaucracies that make quick price changes difficult to implement. Retailers tend to be more nimble in making price changes but even there price stickiness persists. Retailers are wary of confusing the consumer and want to see if lower or higher prices will persist before making a change. This happens both when prices move up as well as they move lower.

Play Now: MP3 (in page player)

Download:MP3 (right click to ‘save as’)Subscribe: RSS/iTunes XML

May 14, 2012

CORN MARKET DIRECTION UNFOLDING, MAGNITUDE STILL UNCERTAIN

The USDA’s projections of U.S. and world corn and feed grain supply and demand conditions presented in the May WASDE report set the benchmark by which the corn market will judge unfolding events.  Those events are continually unfolding, with some of the more important ones to be revealed this summer.

Among the factors to be revealed over the next few months, two of the most important are the rate of domestic feed and residual use and the prospective size of the 2012 U.S. crop.  Feed and residual use of corn during the current marketing year is projected at 4.55 billion bushels.  Use during the first half of the year, as implied by the quarterly stocks estimates, totaled 3.39 billion bushels.  To reach the projection for the year, use during the last half of the year will need to total 1.16 billion bushels, about the same as consumed during the same period last year.  Use in that period totaled 1.718 billion bushels in 2010 and 1.631 billion in 2009.

The projected decline in the pace of feed and residual use during the last half of the year is expected to come in the final quarter as a result of increased wheat feeding and the availability of more than the normal amount of new crop corn.  Increased wheat feeding in the summer of 2011 was also expected, but did not occur.  Based on the estimate of September 1, 2011 wheat stocks, feed and residual use of wheat during the summer of 2011 was at a 5-year low of 204 million bushels, 54 million less than use in the summer of 2010.  Early corn planting this year is expected to result in an early harvest of a larger percentage of the 2012 crop and additional consumption of new crop corn in August.  The pace of maturity of the crop will provide a gauge of the amount of corn likely to be harvested in August.  The estimate of June 1 corn stocks, to be released on June 30, will provide for an estimate of feed and residual use during the third quarter of the marketing year and the level of use needed in the fourth quarter to reach the USDA projection.

A combination of large corn acreage and a projected record average yield of 166 bushels are expected to result in a U.S. corn harvest of 14.79 billion bushels this fall.  That projection is 2.432 billion bushels larger than the 2011 crop and 1.698 billion larger than the previous record crop of 2009.  The yield projection is 2 bushels above the trend calculation for 2012 based on the trend of the U.S. average yield from 1990 through 2010.  The above-trend yield reflects the anticipated impact of a smaller than average portion of the crop planted after the optimum date for maximum yields.  History suggests that a new record average yield will require below average summer temperatures and above average summer precipitation, such as occurred in 2004 and 2009.  The USDA’s June 30 Acreage report will provide estimates of planted and harvested acreage.  On-going weather conditions and the USDA’s weekly report of crop conditions will provide the basis for yield projections prior to the USDA’s August Crop Production report.

Another factor that will unfold over the next few months is the prospective size of the corn and feed grain crops in the rest of the Northern Hemisphere.  The USDA projects larger corn crops than those of last year in China, Canada, Mexico, and the Ukraine.  Production of all feed grains is expected to be larger in the EU, Canada, China, and Mexico.  The largest increases in production, however, are expected in the Southern Hemisphere as production rebounds in Argentina and South Africa.  Those prospects will unfold in late 2012 and early 2013.  The first USDA forecast for the 2012-13 marketing year is for record foreign feed grain production.  The size of those crops will influence export demand for U.S. corn, with Chinese demand to be of special interest.

In addition to production prospects, the corn market will be influenced by the world economic and financial conditions as they impact consumer incomes and commodity demand.  Domestically, the rate of implementation of 15 percent ethanol blends will also be important for corn demand as the blend wall for E10 approaches.

Conditions are in place for a very large U.S. corn harvest, a return to a more abundant stocks situation, and a return to lower prices.  The magnitude of these changes is still to be determined and will unfold over an extended period.  Even with higher average yields this year, substantially lower corn prices could have a disproportionately large impact on producer returns as anecdotal evidence suggests that a relatively small portion of the 2012 crop has been forward-priced at higher price levels.

Issued by Darrel Good
Agricultural Economist
University of Illinois ]]> http://swineweb.com/weekly-outlook-university-of-illinois-corn-market-direction-unfolding-magnitude-still-uncertain-may-15th-2012/feed/ 0 http://swineweb.com/large-traders-continue-to-reduce-positions-paul-georgy-of-allendale-inc/ http://swineweb.com/large-traders-continue-to-reduce-positions-paul-georgy-of-allendale-inc/#comments Mon, 14 May 2012 11:17:55 +0000 SwineWeb News http://swineweb.com/?p=32837

Des Moines, IA Fri May 11,2012 USDA-Iowa Dept of Ag Market News

National Direct Delivered Feeder Pig Report: Week Ending May 11
Weekly Summary of prices on a delivered farm to farm basis.

RECEIPTS THIS WEEK: 104,965 LAST WEEK: 84,929 LAST YEAR: 105,111

VOLUME BY STATE OR PROVINCE OF ORIGIN:
Indiana 18.5%, Manitoba 17.3%, Iowa 10.4%,
Oklahoma 10.2%, Colorado 7.5%, Illinois 7.5%,
Minnesota 5.9%, North Dakota 4.8%, Missouri 4.5%,
Nebraska 4.0%, Wisconsin 3.6%, North Carolina 2.1%,
Kansas 1.2%, Montana 1.1%, Ohio 1.0%,
South Dakota 0.6%,

VOLUME BY STATE OF DESTINATION:
Iowa 45.1%, Illinois 17.3%, Minnesota 16.6%,
Indiana 16.2%, Ohio 2.2%, Nebraska 2.1%,
South Dakota 0.5%,

TRENDS COMPARED TO LAST WEEK: Early weaned pigs and all feeder pigs
3.00 per head lower. Demand light for moderate offerings. Receipts
include 54% formulated prices.

All Prices Quoted on Per Head Basis With An Estimated Lean Value of 50-54%
Formula Formula Cash Cash
Lot Size Head Range Wtd Avg Head Range Wtd Avg

EARLY WEANED Pigs 10-12 Pounds Basis:
600 or less 1800 35.48-41.14 37.76 2825 17.00-33.00 25.49
600 – 1200 13241 29.40-45.00 37.94 4430 24.00-31.40 26.71
1200 or more 42544 31.18-46.00 39.34 24150 20.00-33.00 26.42
Total Composite 57585 29.40-46.00 38.97 31405 17.00-33.00 26.38

FEEDER Pigs 40 Pounds Basis:
600 or less 2825 45.00-57.00 51.65
600 – 1200 4550 47.00-56.00 53.36
1200 or more 8600 45.50-63.00 53.65
Total Composite 15975 45.00-63.00 53.21

Total Composite Weighted Average Receipts and Price (Formula and Cash):
All Early Weaned Pigs: 88990 at 34.53
All 40 Pound Feeder Pigs: 15975 at 53.21

NOTE: Prices are quoted on a per head basis delivered to the buyers farm.
These prices include freight and fees on a farm to farm basis. Most lots of
40-60 weight pigs have a sliding value from the negotiated weight basis which
is calculated on the actual average weight of the load plus or minus .25-.40
per pound. Some early weaned lots have a slide of .50-1.00 per pound. Early
weaned pigs are under 21 days old. Estimated lean value is projected to use
slaughter weights with normal confinement feeding conditions. Vaccination
and health program values are not included but health status should be
disclosed.

Source: USDA Market News Service, Des Moines, IA
Bruce Thomas 515-284-4460 Desm.LGMN@ams.usda.gov
24 Hour recorded market information 515-284-4830
www.ams.usda.gov/mnreports/NW_LS255.txt
www.ams.usda.gov/LSMarketNews

1400C BAT

Carcass weights for both cattle and hogs have been sharply higher this year, skewing the supply picture for beef and pork protein supplies YTD. By far the most dramatic impact of the higher carcass weights has been in the cattle complex. Different from hogs who spend their time indoors, cattle are exposed to the elements and therefore tend to be greatly affected by winter weather. In cold and wet weather, cattle will spend a lot of their energy trying to stay warm. However, this past winter was one of the warmest on record, helping cattle retain more body fat than in past years.. Cattle dressed carcass weights peaked at 792 pounds in early March, a 2.7% grain from the same period a year ago and an all time record for Q1. For the week ending May 5, USDA estimated total cattle carcass weights at 780 pounds per carcass, a 20 pound gain (+2.6%) from the similar week a year ago. Seasonally weights decline between January and May but that has hardly happened this year and current cattle weights, which should be the lowest for the year, match some of the highs that we saw in the fall of 2011.

One of the arguments for the higher carcass weights is that we now have fewer cows in the cattle mix. Indeed, looking at the decline in cow slaughter recently, this would seem to make
sense. However, the weekly statistics does not seem to support this explanation. Since the beginning of the year, steer slaughter is down 5% compared to a 7% decline in heifer slaughter and 3% decline in cow slaughter. Year to date, steers have made up about 48% of the overall slaughter, about the same as a year ago. Since the beginning of March, steer slaughter has been down 5% from last year compared to a 3% decline for heifers and 4% reduction in cow slaughter At this point, changes in the slaughter mix do not seem to have had much effect on weights. Rather, we are seeing big gains in weights for steers, heifers and cows. Year to date steer weights are up 16 pounds or 1.9% from the same period a year ago, heifer weights are up 17 pounds or 2.2% and cow weights are up 6 pounds or 0.9%. The higher weights effectively have negated some of the effect of lower slaughter. They also tend to negatively impact feedlot returns as more discounts are taken for over finished animals. Retailers and foodservice

As we have noted before, the gains in hog carcass weights have been quite significant this year, as well. Based on the daily MPR data, hog carcass weights are currently hovering
at around 208 pounds per carcass, about 1.3 pounds or 1% higher than a year ago. Seasonally lower hog weights will limit both the overall supply of pork and particularly the supply of pork trim. 72CL pork trim is up 20 cents in the last two weeks. It is one of the arguments for hog futures being oversold at this time.

Disclaimer: The Daily Livestock Report is intended solely for information purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any commodities or securities whatsoever. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures trading is not suitable for all investors, and involves the risk of loss. Past results are no indication of future performance. Futures are a leveraged investment, and because only a percentage of a contract’s value is require to trade, it is possible to lose more than the amount of money initially deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyle. And only a portion of those funds should be devoted to any one trade because a trader cannot expect to profit on every trade. CME Group is the trademark of CME Group, Inc. The Globe logo, Globex® and CME® are trademarks of Chicago Mercantile Exchange, Inc. CBOT® is the trademark of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange. Inc. COMEX is a trademark of Commodity Exchange, Inc. Copyright © 2011 CME Group. All rights reserved.

The Daily Livestock Report is published by Steve Meyer and Len Steiner. To subscribe/unsubscribe visit www.dailylivestockreport.com. operators have been complaining for some time about the size of cuts coming to market and the current situation does little to alleviate those concerns. It’s actually making things worse.

Play Now: MP3 (in page player)

Download:MP3 (right click to ‘save as’)Subscribe: RSS/iTunes XML

May 7, 2012

CORN PRICES IN THREE PARTS

Corn prices have recently moved in three distinct patterns.  These include the patterns for new crop futures, old crop futures, and old crop cash prices.

December 2012 futures reached a high of $6.735 on August 31, 2011and declined erratically to the current low of $5.15.  The decline since the third week of April totaled about $.50.  Continued weakness reflects a combination of large crop expectations and demand concerns.  The early planting season along with non-threatening weather conditions to date have created expectations for an above-trend yield in 2012.  In combination with large acreage, yield expectations point to a crop well above 14 billion bushels.  New crop demand concerns are in two categories.  First, the delayed and likely slow implementation of 15 percent ethanol blends in the U.S. fuel supply point to stagnating corn consumption in that category next year as the E10 blend wall rapidly approaches.  Second, the European debt crisis, a slower pace of economic growth in China, and the slow pace of job creation in the U.S. dampen commodity demand expectations for the year ahead.  The one bright spot may be a larger export market for U.S. corn as the USDA has recently announced large sales to both China and “unknown” destinations.  Conditions currently point to a substantial build-up of U.S. corn inventories next year and increasing expectations that prices will return to the lower averages experienced in the 2007-08 through 2009-10 marketing years.  Average prices received by farmers in that three year period averaged just under $4.00.

Old crop July futures reached a high of $7.95 on August 30, 2011, declined to about $5.92 on April 18, 2012 and are currently trading near $6.15.  The premium of July futures over December futures is nearly $1.00 and has increased about $.36 over the past two weeks.  Weakness in July futures reflects increasing expectations that old crop inventories, while tight, will be sufficient until new crop supplies are available.  Old crop export sales have been brisk, but the pace of shipments remains well below the pace needed to reach the USDA projection of 1.7 billion bushels for the year.  The pace of ethanol production suggests that corn use in that category will not exceed the USDA projection of 5 billion bushels.  Use in the feed and residual category remains difficult to predict, but on the surface, declining animal numbers and prospects for increased wheat feeding point to weaker feed demand this summer.  In general, the old crop price premium provides an incentive for users to delay consumption as much as possible until new crop supplies are available.

The expiring May futures contract has been much stronger than the rest of the futures complex and is currently trading about $.48 premium to July futures.  That premium has increased about $.38 in the past two weeks.  Similarly, old crop basis levels have been extremely strong since harvest and have continued to strengthen in recent weeks.  The average spot cash price of corn in South Central Illinois, for example, was $.31 over July futures on May 4.  In the previous 6 years, the average cash price on that date was $.25 under July futures.

Declining futures prices, particularly for deferred contracts, reflect the expectations of adequate old crop stocks and prospects for a substantial increase in stocks next year.  In that context, the higher price for May futures and strengthening basis levels remain a bit of a mystery.  In general a strong basis reflects tight stocks or a slow pace of movement of corn to market relative to the pace of consumption.  As pointed out in previous articles (here and here) a strong basis pattern over an extended period, such as experienced this year, is unusual.  Tight stocks that would result in a strong basis do not generally develop until late in the marketing year.  As a result, most have attributed the strong basis to an on-going slow pace of sales by producers.    If that is the case, basis levels should be expected to collapse whenever producers give up and move old crop stocks in preparation for harvest of a large crop.   Alternatively, the long period of strong basis may reflect a higher rate of feed and residual use than has been revealed to date and the cash market’s expectation of much tighter year ending stocks.  If that is the case, a strong basis may persist through the end of the marketing year.  The question boils down to which market, cash or futures, has better anticipated consumption and ending stocks.

Price behavior after the May contract expires next week may provide some clues about the correct scenario.  The June 1 stocks estimate will be more revealing and will provide for a more accurate forecast of year-ending stocks.

Issued by Darrel Good
Agricultural Economist
University of Illinois ]]> http://swineweb.com/university-of-illinois-weekly-outlookcorn-prices-in-three-parts/feed/ 0