CME: Crop Conditions Critical for Financial Prospects

by 5m Editor
4 September 2008, at 3:06pm

US - CME's Daily Livestock Report for 3rd September 2008.

We haven’t addressed crop conditions for a few weeks but they remain critically important for the financial prospects of U.S. and world livestock and poultry producers. The familiar charts at right show the percentage of corn and soybean acres rated as good or excellent in USDA’s weekly Crop Condition Report. Both crops remain in better condition that last year’s crop and the average for the past 10 seasons and remain in the middle of the historical range. But the conditions of both crops have deteriorated in recent weeks as well, with corn declining to 61% and soybeans declining to 57% rated good-excellent as of August 31. The top two categories for corn conditions has lost 6% in the past two weeks while the same categories for soybeans lost 4% in just the past week as dry conditions prevailed in many parts of the Midwest. Recent conversations with pork producers who also raise crops indicate that the crops in northwest and north-central Iowa and Minnesota still look very good while those of Illinois and Indiana have deteriorated somewhat in recent weeks. The remainder of Iowa and Missouri are still looking at below-normal yields (and some will be significantly below) due to late-planted crops.

And the maturity of these crops is still a big issue with first frost looming. USDA reported that only 6% of corn acres were mature as of Sunday compared to a 5-year average of 16%. Only 45% of corn acres are dented (a key maturity phase in which corn kernels form a “dent” or small dimple) compared to a 5-year average of 65%. The only maturity factor currently published for soybeans is the percentage of acres setting pods. That number for this year is 94% versus a 5-year average of 97% — but one would expect those high numbers at this point. The question will be whether those pods have time to fill and the beans have time to grow to mature size. As we have pointed out before: The first frost date will be crucial for these crops and, by extension, the livestock industries.

Have cash hog prices ever seen such a large decline as was witnessed last week? The answer, at least back to 1973, is “Only once.” The decline in carcass equivalent Iowa-Minnesota hog prices from the week of August 23 to the week of August 30 was $10.89/cwt. Our data set shows that the only larger week-toweek change was the week of September 8, 1973 when Iowa-Minnesota prices fell by $10.93/cwt on a carcass equivalent basis. Two other weeks, Christmas week of 1975 and the week before Christmas of 2004, saw just over $10 declines and the week of September 14, 2004 saw a $10.01/cwt increase in hog prices.

The latest demand index data from the University of Missouri confirm that domestic beef and pork demand have been soft thus far in 2008. Professor Glenn Grimes estimates that domestic pork demand for January through July was 3.9% lower than one year ago. That compares to –2.9% for January-June. Beef demand through July is pegged at –3.7% from last year (compared to –4.7% through June) while broiler demand was 0.8% higher. That broiler number is MUCH better than the numbers we have shown for the past two months and Professor Grimes tells us the improvement is due to calculation errors in May and June. The correct number for January-June was also 0.8% indicating that broiler demand has softened some since April (when the number was +3.5%) as well. We expect the indexes for beef and pork to increase some as retail prices eventually reflect higher wholesale prices.

5m Editor