Hog Market Thoughts: July 2006

By Al Prosch, Nebraska University Pork Central Coordinator - Corn prices continue to be of concern as debate over ethanol use, feed use, and total supply continues. Clearly there are two sides to the debate.
calendar icon 24 July 2006
clock icon 3 minute read
Al Prosch
Al Prosch

Corn will become very high priced due demand from ethanol as a larger user or corn producers will increase acres to provide both ethanol and feed users adequate supplies. Add in exports and the other alternate users of corn, who rarely are included in the debate and it appears there will be plenty of buyers for corn.

On July 10, 2006, the average basis for corn in Nebraska was -$0.32, with a range from -$0.16 to -$.61. This put local cash prices in a range from $2.41 to $1.96. Anticipation is strong in the corn futures market. The graph at the left shows anticipated prices from December 2006 thru December 2008. A -$0.32 basis would raise the December cash price in some locations to $2.99.

Feed efficiency will be a larger factor influencing profitability than it has been. The chart below gives a relative look at changes in corn cost and the related change in feed cost. The corn soybean meal based diet used is an estimate of whole herd feed use. The value all ingredients are held constant except corn. The corn value is taken the 15th of the month using the Chicago Mercantile Exchange quote for the day. The chart shows the change in diet cost as futures values for corn moved up from June into July.

Regardless of market prices for hogs, producers need to stay on top of feed use. This is a time when monitoring all feed disappearance will be very important. Feed efficiency will not completely make up for low market prices. But feed efficiency will keep your bottom line competitive. Watch all forms of feed disappearance as wasting $3.00 corn has a lot more impact than wasting $1.90 corn. You want to be doing neither. Now may not be the time to price future corn needs. Normally, in a seasonal pattern, there is a harvest low. That often provides a better pricing opportunity.

Source: University of Nebraska's Pork Central - July 2006

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