Record-large corn crop

(Agri-View) – The U.S. Department of Agriculture, in its Aug. 12 supply-demand report, projected the U.S. corn crop to be record-large at 15.2 billion bushels. The national average yield was also projected record-large at 175 bushels per acre. In addition, total corn demand was projected record-large, with corn use for feed showing a 175-million-bushel increase compared to projections just 30 days ago. Corn for feed use is now projected to be 5.675 billion bushels, or up 9 percent from feed use this year. Finally it must be noted that wheat for feed use was increased by 30 million bushels from July. Wheat for feed use is projected to jump by 144 percent next year compared to this year; wheat prices are trading at 10-year lows.

Who or what are we going to feed all of this corn and wheat to? Obviously animal numbers can increase only so fast. It’s important to realize the poultry industry has the ability to increase production in response to cheap and plentiful feed dramatically quicker than either the pork industry or the beef boys. From the time the decision is made to increase production it only takes from six to eight weeks for increased broiler production to begin hitting the market. That compares to about one year for hogs and about 16 months to 24 months for beef animals. However, what the beef industry and pork industry can do, almost immediately, is bring feeding animals to heavier weights.

The livestock producer needs to be fully aware that current projections for record-large pork and poultry production and rising beef production will most likely be revised upward during the course of the next several months. Rising production will most likely occur through flat-out higher production in the poultry industry and mostly through heavier weights of market animals in beef and pork.

Addressing pork, specifically, the only salvation lies in the export market. Pork exports in the first half of 2016 were up 1.8 percent compared to the first six months of 2015. While that’s positive, it’s not good enough to absorb the huge production coming down the pipe. Exports to China have been higher this year. But the magnitude of increased exports to China has not measured up to expectations. It’s a fact that the European Union has increased pork shipments to China. World trade is very complicated. Currency relationships come into play. Trade bans and embargos mean politics come into play. And disease problems around the world come into play. There is not enough time or space to discuss these trade issues in detail. Let’s just say that pork exports need to increase by far more than 2 percent to keep up with expectations for rising production.

Narrowing the scope of this discussion, dramatically, let’s take a look at the October lean-hog chart. In the middle of June the October hog contract topped out just above $74. The recent low, also a contract low, was established this past week at just under $58. That’s a $16 break in prices during about six weeks. The market does appear to have bottomed out, although for reasons totally unknown or understood, it appears a 50-percent recovery is possible. A full 50-percent recovery would take prices all the way back to $66. It appears that would also coincide, approximately, with the 50-day moving average. That upside recovery should actually develop rather quickly, perhaps by the time folks read this column. The next major low is not due until the end of August to perhaps the end of the first full week in September. I recommend watching the October hog contract closely into the monthly cold-storage report due out Aug. 22. If that contract is not trading above $64, by this time that would be a negative indication. If the contract is trading above $64 into the time frame, but not above $66, that would also be negative and suggest that the downtrend will remain intact. If the October hogs are trading above $66, into Oct. 22, it would be a bullish indication and suggest a major bottom has been achieved.