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Pork Commentary: Corn, Soybean, Weath Prices Drop

by 5m Editor
17 January 2012, at 7:35am

US - Corn, soybean, wheat prices all dropped last Thursday, Friday after the USDA released several grain inventory, production and usage reports, corn declined 60 cents a bushel, soybeans 46 cents a bushel, and wheat 46 cents a bushel, writes Jim Long in this week's Pork Commentary.

All prices are lower due to world ending stock inventories higher than the so called market experts expected.

As we wrote last week we are in interdependent global markets. The US grain farmer pricing is not only based on what US production is alone. Wheat is a prime example the former Soviet Union FSU – 12 (including Ukraine, Russia, and Kazakhstan) are projected to produce 114 million tons of wheat in 2011/12 US wheat production 54.41. The FSU – 12 will be about 35 million tons more than two years ago. World wheat inventories are the highest they have been in ten years. Wheat is $6.00 a bushel on the March CME about the same as corn. Wheat is equivalent to corn in livestock rations.

We expect the large world wheat stocks will work as a check on preventing corn price spikes over the coming months.

Over the last year we wrote about observations in our travels:

  • We reported in our August trip to Russia – Ukraine the huge piles of wheat we saw because all grain storage was full. Russia producers are quite positive about their yields.

  • In our August trip from China the efforts underway to increase corn production. The USDA is projecting an increase of 28 million tons this year compared to two years ago or 1 billion more bushels. That is a 20 per cent increase.

  • When we were in India this summer we reported that India for the first time in many years it was legal to export wheat. The second largest population in the world now was surplus in wheat.

  • World grain producers have all benefited by US corn ethanol policies. Ethanol through subsidies has pushed US corn prices and subsequently world grain prices to record levels.

Like all commodities high prices stimulate increased production. More land planted, better equipment, better seed, fertilizer, herbicides, etc.

The USDA last week projected world corn production to increase in this crop year 41 million tons (868 – 827) or 10 per cent wheat up 40 million tons or (691 – 651) or about 15 per cent.

Global grain consumption levels we don’t expect to increase at 10 – 15 per cent levels in the next year. If this all plays out there are a good chance current grain prices have little upside – way more downside. The surest cure to high prices is high prices.

Other Observations

  • Some farmland recently traded near Sioux City Iowa at over $20,000 per acre. The US has 410 million acres of farmland. To maximize the value of high priced land, farming must be more intensive to get returns, that in itself will lead to greater yields and more production.

  • The US corn ethanol industry as of the first of January lost their $6 billion (approx) annual government subsidy. The moonshine industry is putting on a brave face saying that it doesn’t matter. As if! $6 billion that’s about a $1.00 per bushel of corn advantage that they had. As livestock producers we would notice a $1.00 a bushel, that $10.00 per hog difference in cost of production. The corn ethanol industry better hope for high oil prices because without it no one will import their surplus production.

  • This past week we had swine producers from South Korea and China visit us. The South Koreans reported market hogs are bringing $550 per head. Profits are obviously really, really strong. The Foot and Mouth in South Korea devastated the industry with 35 per cent of production disappearing.

China prices are also strong $300.00 per head, profit better than $100 per head. Both countries due to lack of pork supply will need imports for months to come all factors to support our hog prices.

Summary

More grain in inventory, more projected grain production, high prices always lead to lower prices in every commodity. It’s not if but when. USDA is projecting globally 10 per cent more corn and 15 per cent more wheat this crop year. No way consumption levels will increase that fast. We expect little upside pricing to grain prices with the USDA scenario. Mostly downside.