CME: Report Bullish for Corn; July Poultry Exports

US - USDA’s monthly Crop Production and World Supply and Demand Estimates (WASDE) reports, released Friday, estimated a yet smaller US 2010 corn crop but slightly larger-than-expected soybean yields and crop size, write Steve Meyer and Len Steiner.
calendar icon 14 September 2010
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The key yield and production numbers appear at right. Supply and utilization tables for both corn and soybeans appear on page 2 of the link below.

The reports were bullish for corn prices and bearish for soybeans and soybean meal. CME Corn futures for the 2010 crop rose 7.25 to 7.75 cents on Friday while CME soybean futures declined by 12.5 to 15 cents per bushel. 2010-crop soybean meal closed Friday $4.40 to $8.30/ton lower while soybean oil futures prices rose $0.17/lb.

The most important numbers in Friday’s reports are, obviously, USDA estimate of corn yield and production. The projected yield of 162.5 bushels per acre was lower than analysts expected and 2.5 bushels lower than USDA’s August estimate. USDA left harvested acres unchanged (a bit of a surprise to us) but the lower yield pushed the estimated 2010 corn crop to 13.160 billion bushels, down 1.5 per cent from the August estimate but 0.4 per cent LARGER than last year and still the LARGEST CORN CROP ON RECORD. Yet the midpoint of USDA’s price range is now $4.40/bu. — the highest ever should it prove correct — primarily due to the lowest projected year-end stocks/ use ratio (8.3 per cent) since 1995-96 when corn prices set their last record highs that were unaided by $140/barrel oil and a worldwide commodities price bubble. The lower projected 2011 stocks/use ratio is the result of several changes, starting with increases for projected 2009- 2010 ethanol usage and corn exports. Lower 2010 year-end stocks plus lower 2010 output were the primary factors in a projected 2011 ending inventory of just 1.116 billion bushels, the lowest since 2004.

While US beef, hog and chicken producers have a bit of margin to work with at present, these continuing increases in corn prices are whittling away from them pretty rapidly. Our projected margins for hog producers in 2011, for instance, have dwindled from about $25/head back in June to just $7/head now as costs have risen from the low $60s/cwt. carcass to roughly $70/cwt. carcass.

Data for US meat and poultry exports, released also on Friday, showed that July was a good month for beef shipments but a soft one for both pork and chicken exports when compared to last year. Beef exports totaled 2.049 billion pounds, carcass weight in July, 23 per cent higher than one year ago. The growth was led by significant growth in sales to Korea (+313 per cent) and Russia (+104 per cent) and continued growth in exports to Canada and Japan. Shipments to Mexico were 16 per cent smaller than last year, putting YTD trade there down 28 per cent versus one year ago. But Mexico is the lone YTD sore spot for beef exports as major markets such as Japan (+21 per cent) and Korea (+127 per cent) are higher for the year and trade with Canada, our second largest export market for most of the post-BSE era, is up slightly as well. USDA’s “Other” markets (ie, not Canada, Taiwan, Hong Kong, Japan, Mexico, Russia, Korea or Viet Nam) continue to grow in importance, ranking fourth this month and year-to-date and growing by 23 per cent versus last July and 17 per cent YTD.

Pork exports in July were 7 per cent smaller than one year earlier — a number that is rather disappointing when compared to doubledigit growth in May and June. But remember that shipments to Mexico began to recover from their H1N1-induced decline last July so we are comparing 2010 data to an improving situation in 2009. July shipments to Mexico were only 0.1 per cent larger than last year after increases of 45 per cent and 30 per cent in May and June — primarily due to soft exports last year.

US pork exports are still 5 per cent higher so far in 2010. Trade with all major markets except Russia, China and Korea is higher so far this year with Mexico being the most important growth area in terms of both units and percentage (+24 per cent).

One important number for July is shipments to Japan which were 9 per cent lower than last year. US exports to Japan for April-June (Japan’s fiscal first-quarter) were roughly 19 per cent higher than last year, raising the possibility that Japan’s safeguard mechanism which increases import tariffs by 23 per cent for the remainder of the fiscal year might be triggered. That is still a possibility but the trigger mechanism is Japan’s total imports, not just US exports to Japan. If Q1 shipments do not trigger the safeguard, the July decline likely puts such worries to rest for the remainder of this year.

Finally — Canada’s CanFAX released its monthly report of feedlot inventories in Alberta and Saskatchewan on Friday and the data indicated sharply lower August placements and lower September 1 inventories relative to one year ago. Alberta and Saskatchewan feedlots held 593,100 head of cattle on September 1, 6.1 per cent fewer than last year. That number was the result of placements numbering 142,300 in August, 18.9 per cent fewer than last year, and marketings that, at 184,700 head, were 4.3 per cent larger than one year ago. Placements of cattle weighing 800-lbs and over were up 1.8 per cent from one year ago while placements of cattle weighing less than 800 pounds were down 61 per cent from last year.

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