$8 Cash Corn And $18 Soybeans Sales? It's Reality And Means All Bets Are Off For Feed Prices Now
U.S. Farm Report 06/11/22 - Roundtable 1
USDA’s June World Supply and Demand Estimates (WASDE) was released Friday, and as expected, it didn’t produce many surprises. The bigger market mover could be later this month when USDA updates grain stocks, as well as issues an updated look at U.S. crop acres.
USDA’s most recent report showed larger than expected wheat stocks, as well as old crop and new crop corn stocks.
After a week of strong corn and soybean prices, Friday’s markets saw price pressure with old crop soybeans down 20 cents. Now that the majority of the crops have been planted despite the late start to planting this year, is a top in and could grain prices start to taper off? Joe Kerns of Partners for Production Agriculture by EverAg answered that question during a live taping of U.S. Farm Report from World Pork Expo this week.
“No, I don't see that at all,” says Kerns. “We're as close to normal as humanly possible as far as planting progress is concerned, development is slightly behind schedule. We have some warmer temperatures coming, which should help speed that along. There has been a lot of rain that we've had here in the last week or so. But we're in an era where the carry out to use ratios relative to price have completely disconnected themselves.”
This week, farmers reported selling old crop soybeans for $18. That comes after farmers have reported corn cashing in above $8. The prices are now at levels farmers haven’t seen since nearly a decade ago.
“We are approaching the high values that we've seen in 2008 and 2012. Those were largely U.S centric production issues. And we've have a global condition right now where if you're a U.S. pork producer, right now you're paying $8 plus for cash corn, whereas if you're in China, you're $12 for corn, $22 for soybeans and $600 for soybean meal. We've got a global situation. Inflation is certainly not helping those matters whatsoever. But this is probably a market where setbacks are need to be bought rather than tops or need to be sold.”
Higher Feed Costs Aren't What's Causing Herd Consolidation
Pork producers aren’t only faced with higher feed costs. Other challenges have also caused hog and pig numbers to see setback across the country.
“We’ve been cutting this out heard some ever since the pandemic began,” says Steve Meyer, an Partners for Production Agriculture by EverAg. “With our numbers smaller than it has been in past years, hanging very close to 6 million head, it's not because of big liquidation. At this point, I think we're going to be kind of sideways, we'll have some negative numbers on the sow herd, probably, but they’ll be small. The big thing that drove it was losses in 2020, when prices fell so drastically during the pandemic shutdowns of our, our packing plants and those kinds of things.”
Meyer described last year as a great year of recovery for pork producers, largely because pork demand was so strong.
“Producers had very strong profits, and so we're kind of going sideways here. It's not that we're cutting very much now, but we're for sure not growing,” says Meyer. “And the reason we're not growing, there's a lot of them production costs being put at the top of the list, building costs being up there labor availability, there are a lot of reasons.”
The Need for More Packing Plant Capacity
Moving forward, Meyer acknowledges the pork industry will have to see more packing capacity come online in order to continue to support hog prices.
“We’re going to have to add some more packing capacity before we grow this business very much over the next several years,” adds Meyer. “We're kind of in between at the moment. This year is not going to be great, because the production costs. Last year was pretty good. There's some incentive out there but there are a lot of reasons that we're not really expanding this herd very rapidly.”
The Big Question Regarding Demand
Demand was the shining star for pork prices last year. Export demand smashed records and domestic demand was on fire. This year, those exports have slowed.
“It's China and its price,” says Dermot Hayes, an agricultural economist with Iowa State University. “Our prices, right now, are off the charts compared to even China. We're actually a little bit higher than in China’s hog prices. There's a glut of pork in China, the EU product that would have gone to China is available for Asian markets, and it's pushing ours back. Fortunately, we had that strong domestic demand in the first quarter. And that that absorbed product that might have gone into the export market too, and it’s kept their prices up.”
Hayes doesn’t see China returning to the U.S. for pork in a major way this year, but he does think pork demand starts to rebound due to liquidation in China.
“The have a futures market, and it's not predicting a return to profitability at all looking forward,” says Hayes. “So they're going to have to liquidate those highly leveraged buildings. And that would probably take six months to a year, and then you wait another six months to a year and we'll see demand come back in China.”
Domestic Demand Staying Strong
On the other hand, domestic demand hasn’t seen signs of slowdowns yet, despite inflation. The latest Consumer Price Index data shows pork prices at the grocery store are up 13% year-over-year. Chicken prices have soared 17% during that time. Beef prices are up 10%.
“Pork demand is up over 6% from a year ago, and that was record-high last year domestic demand,” says Meyer. “If that can continue, I think we will hold these hog prices in so that we don't see a lot of red ink on the on the producer side. Now, that's a pretty big if given you're looking at higher inflation, you're looking at the possibility of a recession, a number of things.”
Meyer says history shows us that pork demand hasn’t taken big demand hits during periods of recession. He says in the past, beef and chicken see bigger impacts during tough economic times due to the reliance on the food service sector.
“I think we can survive that pretty well. My biggest concern is what is inflation due to real purchasing power in the hands of consumers,” says Meyer. “It's going to be a drain how many dollars they have for discretionary spending. That may hurt meat demand as we go forward. So I think that's the biggest risks we face outside of these high production costs, which I guess I don't think those are a risk, I think they're pretty much a certainty.”
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