Forecast: High Supplies

A couple of years ago feed grain users were treated to a wild ride.
Prices were high and turbulent. It was like being in a canoe shooting
Hell’s Gate on the Fraser River or the Whirlpool Rapids on the Niagara
River.

A couple of years ago feed grain users were treated to a wild ride. Prices were high and turbulent. It was like being in a canoe shooting Hell’s Gate on the Fraser River or the Whirlpool Rapids on the Niagara River.

A calmer ride Elevated grain prices seen in 2007 haven’t been repeated in 2009, despite the USDA’s forecast of bumper corn and soy crops. Advertisement

Neither is a place for amateurs or the faint of heart.

By comparison, this year looks to be calm and placid. While it  might not be all smooth sailing for feed buyers there is nothing resembling a perfect storm on the horizon.
There might be the occasional wave kicked up by overly enthusiastic speculators, or local crop conditions, but there looks to be more than enough North American supply to keep things flat and calm.

Corn Supplies
The U.S. Department of Agriculture is projecting record corn supplies. The result is more than enough to meet all the expected demand by U.S. livestock, and allow for increased ethanol production and increased corn exports.

Soybean production in the U.S. is also expected to be up from last year and the world supply of oilseeds is forecast to be a record high, according to the USDA.

Meanwhile, Agriculture and Agri-Food Canada has forecast a small drop in corn production and a slight rise in prices. It is also forecasting increased imports for Western Canada.

Soybeans
For soybeans a record seeded area is expected to translate into record production and slightly lower prices.

Wheat
Wheat is a completely different story. Drought and bad growing conditions are expected to cut Canadian wheat production by 23 per cent. But the drop in production isn’t expected to translate into higher prices, and that is because there are adequate world supplies.

Canola production is expected to be down 20 per cent from last year’s record, but still come in as the second largest crop ever. Prices are expected to be up based on strong world demand for vegetable oil.

The possible pothole in this generally smooth road is, as usual, the weather. Early frost anywhere, more rain in areas like Southern Ontario – which were cool and wet into August – and a lack of rain on the Prairies could provide a major jolt to Canadian projections.

Livestock
On the livestock side of the supply-demand equation the sorry state of the Canadian hog industry is well known. The industry expanded rapidly over the last two decades, became export dependent and extremely capital intensive. When exports collapsed profitability disappeared as well. There are many  causes.

These include U.S. food labelling rules that require the Country of Origin (COOL) to be identified, higher feed grain prices last year, difficulties in Asian markets, the misidentified Swine Flu and others.

Another factor is the state of the world economy. Faced with rising unemployment and falling bank accounts consumers economized. One way this was done was by buying less expensive food and that included reducing the amount of meat hitting dinner tables.

A recent Statistics Canada confirms that Canada’s hog and cattle herds have been declining.

As of July 1, Canadian hog producers had an estimated 12.1 million hogs on their farms, down 6.7 per cent from a year earlier.

“Hog inventories have been decreasing since 2006, reflecting a number of factors. These include high feed costs, low commodity prices, a strong Canadian dollar and the economic downturn. The downturn has reduced access to credit for producers and decreased meat demand by consumers,” says the Statistics Canada report.

The Canadian breeding herd dropped 4.6 per cent year over year to just under 1.4 million head.

Cattle producers have also seen reductions in their herd inventories.

As of July 1, there were 14.8 million head of cattle on Canadian farms, down 2.3 per cent from a year earlier. Canadian cattle producers are also dealing with low prices because of reduced consumer demand.

Falling exports to the United States has also been a major issue. The Statistics Canada report shows that during the first six months of 2009, total cattle exports were down 32 per cent from the same period a year earlier.

Beef shipments from Alberta dropped 11.8 per cent in the first six months, while Saskatchewan saw cattle exports fell by 42 per cent and Manitoba exports sunk 30 per cent. Eastern Canadian cattle exports were reduced by half during the first six months of the year.

Domestic slaughter has also been falling. Statistics Canada says that the number of cattle and calves processed in Canada was down 6.8 per cent from the first half of 2008.
Hog export numbers aren’t any better. During the first two quarters of 2009, hog producers exported an estimated 3.3 million hogs, down 35 per cent from last year.

Meanwhile, in the U.S. the agriculture department says that per capital disappearance (consumption) of beef, pork and poultry this year is down as are prices.

U.S. hog prices are forecast to hit bottom late this year while beef prices bottomed in the first quarter of this year.

Meanwhile U.S. broiler prices have been volatile, bumping up and down with regularity. The USDA projects they may begin to recover next spring.

U.S. egg prices are down about a third from their 2008 peak and while they may be starting to recover, any return to 2008 levels of $1.28 (US) a dozen is beyond the forecast period, according to the USDA.

But dairy farmers are by far the hardest hit part of the U.S. livestock industry. Their plight has been grabbing headlines on national newscasts and in the mainstream press.

U.S. milk prices are down by more than a third, feed grain prices remain historically high and farmers report that they are losing thousands of dollars per cow per month. Thousands of producers have left the industry while others face a rising sea of red ink.

The USDA projects that milk prices will begin to recover in 2010, but remain about 20 per cent below 2008 levels.