COMMODITIES

Commodity Insights

Competitive Commodity Insights: Holiday Meats

Turkey pricesTurkey. U.S. turkey farmers produced just 0.2 percent less meat in August than they did in the same period last year, at 484 million pounds. Because that estimate actually came in higher than USDA expected, the agency revised its estimate for production in the third quarter 2014 to 2.1 percent higher than last year's. This anticipated increase comes after turkey meat production has been lower on a year-over-year basis for the last five consecutive quarters. Looking into next year, USDA expects that year-over-year production to increase to 3.4 percent higher than for this year. Lower feed costs and generally strong prices for whole birds and parts appears to be spurring turkey producers to increase production.

Still, even with that increased production, supplies remain limited. Cold storage holdings of turkey products at the end of August were down 15 percent lower compared to 2013, pattern that held true for the first eight months of this year. The lower stocks over the last several months were due primarily to smaller holdings of whole birds, specifically of whole toms--holdings of whole birds were 10 percent lower than a year earlier, but the decline came entirely from smaller stocks of whole toms. Stocks of whole hens at the end of August, in contrast, were 14 percent higher than a year earlier. Those lower stocks have pressured prices upward not only for whole birds but also for most parts, USDA reports. The average national price for frozen 8- to 16-pound whole hens was $1.10 per pound in third-quarter 2014, over 10 cents more per pound than a year earlier. The wholesale price in fourth-quarter 2014 is forecast at $1.12 to $1.16 per pound, about 9 cents per pound higher than the previous year. With falling cold storage holdings, prices for most turkey parts have been higher than those in the previous year. In August, prices for boneless/skinless turkey breasts were over 100 percent higher than a year earlier and averaged over $4.00 per pound. Prices of frozen tom drumsticks were also much higher, averaging just under $1 per pound, 34 percent above a year earlier. Prices will continue to get upward price pressure until rising stock levels, which are expected in 2015 from higher production, start to reverse this trend.

Lamb pricesLamb. Lamb and mutton production for the third quarter of this year is expected to by down 12 percent from the mid-year and down 4 percent compared to last year. Although production typically fall during the summer months because farmers have fewer market lambs to sell, USDA also believes the decline reflects recognition by farmers that weaker-than-expected consumer demand for lamb does not bode well for their bottom line ahead, and they are therefore reducing production. The amount of lamb and mutton being held in cold storage is the highest its been since the middle of WW II, USDA says. Cold storage right now represents nearly 2.5 times the entire production of domestic lamb and mutton for the month of July. Those excess stocks suggest consumers are slowing down in their lamb consumption. But despite the relative weakness in lamb and mutton demand, imports continue to show strength: Second quarter 2014 lamb and mutton imports were up 11 percent from the same period last year. Third-quarter imports are forecast at 37 million pounds, slightly above third-quarter levels in 2013.

Ham and pork pricesHams. USDA's September report regarding the pig inventory on U.S. farms showed the supply chain is feeling the effects of an epidemic disease that has moved through the major hog-producing regions which kills young pigs. The Sept. 1 inventory of market hogs was 2.7 percent lower than a year ago, reflecting losses to Porcine Epidemic Diarrhea that occurred in the spring and summer months. At the same time, the report indicated nascent signs of recovery and expansion. Fourth-quarter production is expected to be year-over-year lower, deriving as it does from lower pig crops. But as has been the story for most of 2014, higher average weights of the hogs farmers are bringing to market will help to offset lower fourth-quarter slaughter numbers. Pork production is expected to be about 6 billion pounds, almost 4 percent below a year earlier.

Meanwhile, pig farmers appear, like turkey producers, to be reacting to expected lower feed prices and higher hog prices by planning to expand supply. The Sept. 1 inventory of breeding animals was almost 2 percent higher than a year ago, the sharpest increase in the herd since December 2007. Hog prices that, although down compared to early 2014 are still 3 percent higher than the average for 2013 are incentivizing farmers to expand the number they breed by 4 percent for the fall and winter quarters. Meanwhile, USDA predicts pork demand will remain strong and continue to absorb those prices, as shoppers increase pork consumption to replace exceptionally high-priced beef products.

Competitive Commodity Insights: Milk and dairy supply outlook

What's in store for milk supplies?The retail price of whole milk rose in May to an average nationwide price of $3.74 a gallon, according to the Bureau of Labor Statistics, marking a 5.5-year high. Although by July the price had dropped back to $3.65, milk prices on the futures market jumped into record territory early this month, portending even higher retail prices ahead. All this increase has come at a time when dairy farmers are increasing, not decreasing, the supply.

What’s going on with milk prices?

Dairy exports higher than a year ago have been a big factor, driving demand and price even in the face of supply increases, reports University of Wisconsin milk market authority Bob Cropp. World dairy product prices have been higher than U.S. prices, which has served to draw even more milk out of this country. China has been very active in importing dairy products, now surpassing Canada as the United States' second largest customer. Cropp expects this export volume will likely hold at levels that will end the year above the record level of 2013.

But China has accumulated stocks to the point where its import activity has slowed, resulting in a significant fall in world prices to a point now below U.S. prices. While cheese exports were still higher than a year ago for June, reports are that new orders by international buyers have softened. June butter exports have already fallen below a year ago, as have nonfat dry milk exports--now off by 25 percent, Cropp says. So dairy product prices and milk prices can be expected to decline. The question is how soon and by how much?

The level of milk prices and much lower feed costs has meant very favorable margins for dairy producers, and favorable margins typically spur increased production to take advantage. Corn prices are 44 percent lower than a year ago, alfalfa hay prices are just 3.3 percent higher and soybean oil meal prices are starting to fall and are 5 percent lower than a year ago. However, California, the nation's largest producer, with a severe drought is experiencing alfalfa hay prices 35 percent higher than a year ago. So, with some tempering, milk production is picking up, as dairy producers feed for higher production per cow and by adding milk cows. USDA’s milk production report revised June’s milk production to 2.2 percent higher than a year ago and estimated July’s production to be 3.9 percent higher. July milk cows numbered 0.4 percent higher than a year ago, and milk per cow was 3.5 percent higher. Of the 23 dairy-reporting states, 11 had more cows than a year ago, 21 had more milk per cow and 20 had more total milk production.

All told, Cropp says, expect milk production to continue to run 4 percent or more above levels a year ago for the remainder of the year But, it will take time to build stocks. That means prices will only gradually decline rather than take a sharp fall. Dairy futures are reflecting that price optimism.

Competitive Commodity Insights: Pre-season turkey forecast

More young turkeys are coming to market, but how soon?

As summer’s close draws down the seasonal outdoor grilling season and its record-high prices for the season’s staple, beef, grocer’s eyes turn to the holiday meat season. What do turkey supplies and prices hold in store?

USDA forecasts turkey meat production in the second half of 2014 to be up 5 percent from the same period in 2013, at a total 2.95 billion pounds. The supply bump is slighter under expectations: Even with relatively strong farm prices and lower costs for feed—the largest expense in turkey production—the rise in the number of young turkeys farmers placed for growout in anticipation of better profitability didn’t turn significantly higher than a year earlier until May. That jump in placements, delayed though it was, should drive turkey meat production significantly higher in fourth-quarter 2014 and into 2015.

Turkey supply projections

Turkey meat production during the first half of 2014 was 2.76 billion pounds, down 6.2 percent from the same period in 2013. With the number of birds slaughtered and turkey meat production lower in the first half of 2014, turkey stocks at the end of June were down sharply compared with their year-earlier levels. At the end of June, turkey stocks totaled 460 million pounds, down 19 percent from the previous year. Stocks of whole turkeys totaled 266 million pounds, a 14-percent decline from the previous year, while stocks of turkey products totaled 194 million pounds, a decrease of 24 percent from a year earlier. Turkey stocks are expected to remain below year-earlier levels through the end of 2014 but then to expand in 2015 as production increases.

That reduced supply in cold storage holdings have put upward pressure on prices for whole birds. Prices for frozen hens have been higher than the previous year so far in 2014. In July, prices for frozen hens averaged $1.09 per pound, 10 percent higher than the previous year. Whole-hen prices are expected to stay above year-earlier levels through the end of 2014 but then to move slightly lower than the previous year during the first half of 2015.

Over the first 6 months of 2014, prices for almost all parts averaged higher than during the same period in 2013. Prices for leg meat products (drumsticks and thighs) have averaged 41 and 44 percent higher compared with a year earlier. Price changes for breast meat products were mixed, with prices for breast meat down slightly and boneless/skinless breast meat sharply higher. Wholesale breast meat over the first 6 months of 2014 averaged $1.21 per pound, 2 percent lower than a year earlier. On the other hand, prices for boneless/skinless breast meat averaged $2.88 per pound, an increase of 144 percent from a year earlier. Boneless skinless breast meat may be the turkey part that has benefited the most from current very strong beef prices. Drumstick prices averaged 48 percent higher in the first half of 2014 than a year earlier, while prices for thighs were up 63 percent. Wing prices, at $1.22 per pound, were 4 percent higher. With low stock levels and lower production through third quarter 2014, turkey part prices are expected to continue to experience upward pressure.

Competitive Commodity Insights: Corn crop outlook

Will corn crop bust the bins this year?

Drought's effects are slowly disappearing

USDA reports a combination of factors--rain in the southern High Plains finally beginning to relieve the drought that began nearly
four years ago; cool, dry air overspreading the northern Plains; and a lack of heat stress and abundant soil moisture in the Corn Belt of the midwest--are all contributing to corn-growing conditions approaching the best in 20 years. USDA reported by the third week in July, more than half  this year’s corn crop was at or beyond the "silking stage," the critical stage in the plant's development in which corn kernals begin to develop. The 56 percent silking mark was 44 percent higher than the corn crop was at this point in time last year, and just above the average for the last five years.

Overall, USDA reports fully 76 percent of the current corn crop is in good to excellent condition, or 21 percent better than it was at the same time last year. The quality of the crop at this point in the season is nearly unprecedented: In the last two decades, USDA has reported only one other year in which the crop was better by the third week of July. That was 2004, when the crop went on to set a record average harvest of 160.3 bushels of corn per acre.

Futures market prices for corn fell to four-year lows on the news of crop condition that forbodes higher supplies; however, continuing high global demand helped temper the price decline to less than some analysts expected based on anticipated supply increases this fall. About 20 percent of the annual corn crop gets exported to other countries.

How the corn crop is progressing

Why is corn supply and price so important? Corn is the most widely produced feed grain in the United States, with most of the crop providing the main energy ingredient in livestock feed, according to USDA. Corn is also processed into a wide range of food and industrial products, including ethanol. Because corn is the staple commodity for livestock and poultry feeds, which makes up about three-quarters of the total cost of raising meat, milk and eggs, even relatively minor changes in corn price can fuel expansion or contraction plans among livestock producers that eventually result in price changes in meat, milk and eggs.

Competitive Commodity Insights: Summer grilling outlook

It's time for summer grilling. Here's a commodity outlook

With summer grilling season under full steam, meat prices remain red hot.

Beef

The average boxed beef cutout, a composite of wholesale prices for Choice, Select, branded and other categories, gained 13 percent between the year's beginning and the end of April. That month, the wholesale prices appear to have topped, with wholesale prices dropping 11 cents per pound.

Beef price trends

Beef to chicken price comparison

Pork

The wholesale prices for beef, pork, and poultry are all driving each other toward higher levels. Wholesale pork remains particularly high in comparison to both beef and broiler prices. The pork cutout rose by 40 percent the first half of 2014, although like beef, they appear to have topped, slipping 14 cents a pound, or about 11 percent, in April.

Pork price trends

Beef to pork price comparisons

Chicken

Unlike beef and pork prices, broiler prices have continued to drive upward. After languishing for most of first quarter 2014 while beef and pork reached new highs, broilers have now caught up, increasing substantially the last two months. By the end of April, the composite broiler price reached $1.11 per pound, a 16 percent increase over the price at the beginning of the year. Poultry is no longer a relative bargain against beef.

Poultry price trends

Pork to poultry price comparison

Partners

Supported by the Nebraska Farm Bureau

The farm and ranch families represented by Nebraska Farm Bureau are proud sponsors of the Farmer Goes to Market program. We take great pride in supporting Nebraska's agricultural foundation. A key part of that effort is to make sure we produce safe and affordable food. This newsletter is an important part of our effort to connect the two most important parts of the food chain -- the farmer and the grocer -- with the goal of increasing consumer awareness and information about how their food is raised in Nebraska.


Supported by the Nebraska Corn Board

The Nebraska Corn Board, on behalf of 23,000 corn farmers in Nebraska, invests in market development, research, promotion and education of corn and value-added products. The board aims to work closely with the farmer-to-consumer food chain, to educate everyone about the role corn has in our everyday healthy lives. The Nebraska Corn Board is proud to sponsor the Farmer Goes to Market program to help bring its mission of expanding demand and value of Nebraska corn to the consumer, through the strongest touch point in that chain: the Nebraska retail grocer.


In patnership with the Nebraska Grocery Industry Association

The Nebraska Grocery Industry Association was formed in 1903 by a group of Omaha grocery store owners, wholesalers and vendors to allow them to promote independent food merchants and members of the food industry, and to promote education and cooperation among its membership. NGIA continues to represent grocery store owners and operators, along with wholesalers and vendors located throughout Nebraska, by promoting their success through proactive government relations, innovative solutions and quality services. NGIA offers efficient and economical programs. NGIA also lobbies on both a state and national level, ensuring that the voice of the food industry in Nebraska is heard by our representatives.