The News & What it Means – Hog Market Bucking Old Adage & Corn Price Outlook Turns Positive

By John DePutter & Dave Milne – June 6, 2017

 

The news:

Hogs up sharply! For agricultural commodities, larger supplies generally result in lower prices. But this year’s hog market is going against that adage – with both larger supplies and higher prices!

– Commentary by Chris Hurt, Dept of Ag Economics, University of Illinois, on farmdoc daily, June 5, 2017.

 

What it means:

Why the higher prices despite bigger supply? The answer is more exports.

 

First off, the details: Total U.S. pork production has been 2.3% higher in 2017 compared to the same period in 2016, Professor Hurt wrote in his commentary. Yet prices through May this year averaged 3.5% higher than last year to date, near US$49/livewt per cwt., he explained.

 

So, it is a 17% increase in pork exports that is driving the bus, noted Hurt. Result is, less pork for Americans. “When U.S. population growth is considered, available pork per person has been down about 1.7 % for the year,” he said

 

We thank him for pointing this out.

 

We would add some further thoughts on what this means for folks in the pig business. Four key ideas:

 

  1. 1. Overall, you can bet that export demand will be a major factor in the prices and profits you get. And right now, things do look bright, with export volumes trending up. The equivalent of more than one in five pigs in the US is exported, and that could increase in the years ahead.

 

  1. 2. Export growth this year can be traced to increased sales to traditional big customers: Japan, Mexico, South Korea. In future, look for increasing demand by China to hold big sway too. China has been mainly shopping in Europe for its pork. China could become an increasingly important buyer in the US and Canada, going forward.

 

  1. 3. Stay optimistic but don’t get starry-eyed. Current high hog prices are great to see, but in a few weeks, a seasonal window for a seasonal peak will open. This market has come up a long way from last fall’s low. The market has a habit of dishing out the best prices in summer and the worst in late-fall/early winter. We’ll go on watch for peaking action – soon.

 

  1. 4. Rising hog prices are only part of the profit equation. Feed prices are important too, as producers know. And feed costs can swing widely. The two main markets to watch are corn and soybean meal. Summer weather will soon make corn and soybean meal feed supplies either more expensive or cheaper. So now is a good time to decide on a feed buying strategy.

 

Ag-Alert releases buy-the dip and avoid-the-rally feed buying advisories for pork producers.

 

Act now or wait?

The upswing in hog prices and concurrent lower prices for feed (mainly soybean meal) have added big bucks to the pockets of pork producers.

 

Want to see our latest Ag-Alert hog risk management and feed pricing recommendations? Click below.

 

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The news:

Societe Generale said it had turned “positive on the outlook” for corn prices.

– Agrimoney, June 2, 2017

 

What it means:

By raising its price outlook, the French multinational banking and financial services company has pretty well summed up all that has so far gone wrong with this year’s growing season in the American Midwest.

 

Admittedly, it is still early and good weather from here on in could allow the corn crop to finish strongly.

 

But it’s impossible to ignore the fact this year’s weather has likely already dented the chances of the crop reaching the 170.7 bu/acre average the USDA forecast in its May supply-demand update.

 

Conditions were overly wet, planting was delayed in many cases and torrential downpours afterward likely necessitated some replanting – ensuring that more of the crop got off to an even later start than needed to realize its full yield potential.

 

The first couple of condition ratings have left plenty to be desired as well, with the corn crop debuting in late May at just 65% good to excellent, 7 points below a year earlier and worse than expected by traders and analysts. Although the crop showed some improvement in the weekly USDA crop progress report released Monday (June 5), it still remains well back of last year.

 

Not only is the crop condition lower, acreage is down too.

Remember too, the USDA originally projected that corn planted area would be down about 4 million acres or 4% from a year earlier, so a lower yield on top of a smaller acreage means production is almost sure to miss the initial USDA projection of 14.065 billion bu. That in turn will tighten 2017-18 corn ending stocks to below the forecasted 2.11 billion bu.

 

Weather still key

Of course, the big Brazilian second-season corn crop looms in the background, but a smaller U.S. crop can’t help but take some of the power away from the corn market bears.

 

Now, it’s just a matter of waiting to see if the weather takes an even bigger bite out of this year’s production potential the rest of the way.

 

Keep abreast of all the twists and turns in the corn market this summer and beyond with Ag-Alert.

 

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