Source: Rita Jane Gabbett, MEATINGPLACE, 8/11/11


USDA’s first U.S. corn and soybean crop forecasts based on actual field surveys put both crops lower than the market anticipated, sending futures prices and cash price forecasts higher and driving poultry and meat processor costs up which could accelerate chicken production cuts.

Report highlights
• Corn production is forecast at 12.9 billion bushels, up 4 percent from 2010, but 1.5 percent smaller than the market expected, based on a Dow Jones pre-report survey of 23 analysts.
• Soybean production is forecast at 3.06 billion bushels, down 8 percent from last year and nearly 4 percent below analysts’ expectations.
• USDA boosted average corn price forecasts for the year ended Sept. 1, 2012 by 70 cents per bushel to a range of $6.20 to $7.20.
• USDA boosted average soybean price forecasts by 50 cents per bushel to a range of $12.50 to $14.50.
• USDA boosted average soybean meal price forecasts by $10 per ton to a range of $355 to $385.
• USDA projected use rationing in reaction to high prices. It dropped corn feed and residual use in the year ended Sept. 1, 2012 by 150 million bushels, reduced ethanol use by 50 million bushels and reduced corn exports by 150 million bushels.
• USDA reduced its corn ending stocks forecast for Sept. 1, 2012 to 714 million bushels from 870 million forecast a month ago, decreasing the stocks-to-use ratio by 1 percent to 5.4 percent.
• USDA cut sorghum production to 241 million bushels from 300 million bushels forecast a month ago and boosted sorghum prices by 90 cents to a range of $6.00 to $7.00 per bushel.

Implications for meat processors
USDA’s crop report was accompanied by its monthly World Agriculture Supply Demand Estimates (WASDE) report.

“WASDE shows no relief in feed costs for protein players, thus keeping pressure on chicken players to potentially accelerate current production cuts,” predicted Deutsche Bank analyst Christina McGlone in a note to investors.

BMO Capital Markets analyst Kenneth Zaslow agreed higher feed costs will likely accelerate production cuts and in a note to investors called the report “negative” for shares for protein companies such as Pilgrim’s Pride, Sanderson Farms, Smithfield Foods and Tyson Foods.

The only consolation Zaslow noted was USDA’s increased its forecast of the amount of wheat that will be used to feed livestock globally by 4.9 million tons, saying, “it may marginally mitigate higher feed costs.”

It could get worse
Other analysts warned that USDA’s corn crop estimates could come down further in the months ahead.
Livestock analysts Steve Meyer and Len Steiner noted in the CME Group’s Daily Livestock Report earlier this week that because USDA estimates are based on stalk counts and use average ear counts and weights to calculate yield, potential heat damage will not be reflected in today’s yield estimates. They also noted that corn crop conditions have continued to deteriorate since the beginning of July due to hot weather and lack of rain.

In late morning trade on the Chicago Board of Trade, corn futures rose 22 cents to $7.00 per bushel for September 2011 delivery and soybean futures prices rose by over 30 cents per bushel to $13.30 for September 2011 delivery.

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