Market Outlook: Spring Pork, Soybean Stock, and Wheat Exports...Oh, my!

April 3, 2013 04:16 AM

By Julie Douglas and Jeanne Bernick

Spring Pork Price Recovery Threatened

Spring Pork

Live-hog and futures prices fell in recent weeks as gas prices soared, budgets threatened to furlough meat inspectors and global markets reduced exports, says Chris Hurt, Purdue University Extension ag economist.

Economists and producers had been hopeful that U.S. prices would return to at least break-even this spring, but a $9-per-hundredweight drop in live-hog prices and a $7.50-per-hundredweight drop in futures prices since February has dampered some of the optimism.

"The current outlook suggests the industry will have to wait until late summer for break-even conditions when feed prices can decline if more normal corn and soybean crops develop," Hurt says. "With the more cautious tone, hog prices are expected to only average about $66 in the second quarter, with costs of production near $70 per live hundredweight."

Price weakness comes from demand concerns, Hurt says. The first of those concerns is the weakened buying power of U.S. consumers.

Unusually high gasoline prices for this time of year and increased payroll taxes since Jan. 1 have reduced the buying power of American consumers.

Second, Hurt says the potential reduction in federal meat inspectors as a result of automatic spending cuts mandated by sequestration could mean animal-processing plants would operate fewer days of the year. If plants shut down some days, they wouldn’t buy hogs, thus weakening hog prices.

The biggest problem has been with pork exports, which account for 23% of total U.S. pork production. In February, Russia banned imports of U.S. pork because of ractopamine concerns. Then China announced they were going to more closely check imports of U.S. pork for  ractopamine. Last year, China’s pork purchases from the U.S. represented 3.4% of total U.S. production.

In addition to loss of Russian and Chinese markets, the value of the Japanese yen has fallen by 12% so far this year and by 16% since October. The decline means U.S. pork prices are higher in Japan by similar percentages. Japan bought 6% of the U.S. pork production volume in 2012, making the country the largest U.S. pork buyer.

The market problems have created a less-then-welcome outlook for hog producers.

Soybean Stock Levels Push Prices Higher

Smaller soybean stocks are setting the price for the 2012/13 marketing year. The 2012 soybean crop was 79 million bushels smaller than the 2011 crop, meaning the current marketing year supply is 121 million bushels (3.6%) smaller than the previous year.

Consumption of U.S. soybeans during the first quarter of the marketing year, however, was record large and the pace of consumption remained high during much of the second quarter, says Darrell Good, University of Illinois economist.

Watch South America. The rapid pace of consumption reflects continued strong export demand for soybeans and soybean products and the drought reduced South American harvest in 2012. The market was willing to let consumption proceed at such a rapid pace in anticipation of a seasonal slowdown in export demand during the last half of the marketing year when South American supplies become more abundant.

"With prospects of a sharp rebound in South American production to a record level in 2013, it has been anticipated that the slowdown in consumption of U.S. soybeans would be sharper than normal this year and that yearending stocks would be maintained at pipeline levels," Good explains.

The magnitude of the required slowdown will in turn determine whether soybean prices need to adjust higher in order to slow the pace of consumption to more normal or whether supplies are large enough to allow prices to continue to move lower.

Projected Wheat Exports Lowered

Wheat closeup

Strong Competition. Demand competition from the EU and a relatively strong currency have further reduced prospects for U.S. wheat shipments.

U.S. wheat exports for 2012/13 are projected to be 25 million bushels lower in March, according to USDA’s Wheat Outlook released March 12. Fewer exports mean a boost to projected ending stocks by the same amount.

Continued strong competition, mainly from the EU, and a relatively strong currency, further reduces prospects for U.S. wheat shipments, reports Olga Liefert, a USDA economist for the Department’s monthly Wheat Outlook. USDA lowered exports for hard red winter wheat by 25 million bushels.

Exports also reduced white wheat by exports by 10 million bushels and hard red spring wheat by 5 million bushels, but raised soft red winter wheat by 15 million bushels.

All-wheat imports remain unchanged, but adjustments have been made among the classes. Trade changes largely reflect the pace of sales and shipment to date, Liefert says. USDA’s projected range for the season-average farm price for 2012/13 was lowered 10¢ at the midpoint and narrowed to a range of $7.65 to $7.95 per bushel.

USDA increased numbers for world wheat production for 2012/13 by 1.9 million tons to 655.5 million tons, due mostly to upward revisions by India, the EU and Nepal, Liefert says.

Wheat use is up slightly as of March, according to USDA, with feed and residual use up 1.3 million tons and food use lower by 0.8 million tons. Overall, Liefert says, world wheat trade is projected to be larger.

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