It is difficult to ascertain what the true impact of hot, dry weather was on the corn crop in late August. The crop was planted much later than usual so market participants can make an argument that the impact was more significant than it would have been in a normal year. However, the more bullish estimates are tempered by field reports indicating very good yields in states where the harvest is underway.

It remains to be seen what had more of an impact on the corn crop, the cool July that helped the crop during the critical pollination phase, or the hot August. But even with the below trend yields that just about everyone is expecting, it is clear that corn supplies will build significantly and soon the focus will shift on the demand side, with hog and poultry production expected to absorb all of the supply growth. Will livestock and poultry numbers increase quick enough to do so? Broiler producers already have started to expand while there are growing questions as to the ability of pork producers to quickly ramp up production. USDA currently expects feed use to increase by 15 per cent in the new crop year. We know cattle supplies will be smaller and with producers holding back heifers, feedlot supplies will be limited. Hog inventories as of September 1 will likely be only marginally higher than the previous year and, depending on the impact of PEDv disease, it will take time for producers to ramp up production.

Broiler egg sets are currently running about five per cent above year-ago levels but broilers producers recognize the need to protect their margins. The sharp decline in whole bird and breast meat prices is a reminder of how quickly fortunes change in that industry.

But at this point all focus in the corn market remains on supply, demand is more of a conversation for those long winter nights. There is broad agreement among analysts that the hot weather had a much more profound impact on the late planted soybean crop. Indeed, some estimates of soybean yields are approaching the dismal levels we saw in 2012. While it is unlikely that soybean yields will be as poor as last year, the very fact that those yields are in the discussion helps explain the rally in bean prices the last four weeks. Higher soybean prices have bullish implications for soybean meal prices despite the generally bearish influence of rebounding corn supplies. Soybean oil has been kept in check in recent months by ample palm oil supplies and lower palm oil prices. Soybean meal has had to carry more of the value and this certainly will be a negative for dairy, hog and poultry producers.

And then there is the issue of meat export demand. The US District Court of Columbia denied a request for meat industry groups for a preliminary injunction of the USDA Mandatory Country of Origin Labelling Law (COOL). This means that the new COOL requirements will stay in place and retailers will have to abide by them. The question now is how Mexico and Canada, two of our largest trading partners, respond. Will they impose tariffs on US pork, chicken, beef? It is possible but it will also take time to implement any such tariffs. It is certainly a discussion we will pick up again in future letters.

Further Reading

You can view the WASDE report by clicking here.