Beef production up, corn estimates cut

Jul 13, 2012

The July World Agricultural Supply and Demand Estimate (WASDE) report, released Wednesday, July 11, bespoke the weather woes faced in much of the growing areas of the U.S. Drought and back-to-back days of record heat have cut yield estimates for corn and soybeans significantly, with expectations of further reductions in the months to come. While considerable attention rests on the happening of corn, beef was the bright spot in meat estimates, rising beyond earlier predictions and leaving other proteins behind.

Beef and other meats

Annual beef production estimates rose in the July WASDE report from 25.18 billion pounds in the June report to 25.27 billion pounds. Analysts expect this increased projection is due to weather and pasture conditions around the country. As drought and high heat damage pastures, and hay is scarce, more cattle are expected to be sent to slaughter than previously anticipated.

Though the overall production estimate increased between the June and July reports, even the raised number is still below 2011’s 26.29 billion-pound production. Expectations for beef production in 2012’s third and fourth quarters are similarly below last year’s levels.

Estimates of overall beef supply for 2012 rose in the July report—from 28.22 to 28.35 billion pounds—due to expected increases in imports and decreases in exports coupled with the aforementioned increased production projections. In the June report, USDA estimated 2.44 billion pounds of imports and 2.62 billion pounds of exports. These numbers were revised in the July report to 2.48 and 2.59 billion pounds, respectively.

Both beginning and ending stocks projections remained steady at 600 and 575 million pounds, respectively. Total use projections went up by 165 million pounds from last month’s expectations to 25.19 billion pounds. Per capita retail availability of beef was also raised to 56.1 pounds per person, up 0.4 pounds from June.

The July report saw a $2 drop in the top end of the estimated average annual prices paid for live steers to stand at $123-126 per cwt. Despite this decline, the estimates for annual prices paid for steers in 2012 is well over 2011’s average of $114.73. Quarterly average price estimates are similarly up compared to 2011; $7-11 in the third quarter and $1-4 in the fourth quarter.

Other meats are not projected to perform as well as beef. Expectations for pork, broilers and turkey were adjusted down in July compared to June. Despite the gains in beef, the expected performance of pork and poultry combined to drag down overall meat production, use and availability.

Pork import expectations remained steady at 812 million pounds, but diminished production resulted in a smaller total supply of 24.67 billion pounds for 2012. Export of pork is expected to increase by 20 million pounds above June estimates to 5.4 billion pounds.

Expectations of decreased use—from 18.73 billion to 18.62 billion pounds—were not enough to offset the effects of export increases, and projected per capita pork availability was adjusted down 0.2 pounds to 46 pounds per person.

July projections for broilers were mostly unchanged from June with the exception of exports, which are expected to increase 100 million pounds. This combined to drop the per capita availability slightly. Turkey production estimates dropped by 24 million pounds and export forecasts climbed 20 million pounds. These again combined for decreased per capita availability of turkey.

Overall estimates for combined meat and poultry show production levels dropped by 7 million pounds and export was up by 105 million pounds. Import expectations adjusted up 40 million pounds and the gains in beef could not offset the downtrend in availability of the other meats. Overall per capita availability of combined meat and poultry was estimated at 201.3 pounds per person, down 0.3 pounds from June forecasts.

Corn and other crops

Corn and projections of corn’s immediate future have been in the spotlight in commodities markets and agricultural news. Drought and extended periods of unseasonably hot weather in corn-growing regions have severely harmed the crop conditions.

The July report increased estimates of acres planted in corn from 95.9 million to 96.4 million acres. Despite this, projections of harvested acres were dropped from 89.1 million to 88.9 million acres due to heat and drought. Yield forecasts were also reduced because of weather concerns, from 166 bushels per acre (bpa) to 146 bpa.

At the reduced harvested acreage and yield projections, expectations of production dropped a whopping 1.82 billion bushels, from 14.79 to 12.97 billion bushels.

Several analysts have voiced their opinion of the forecasts as suspect. Assumptions exist that the projected acres harvested will be lowered dramatically (i.e. acreage abandonment increases) and yield estimates will also drop as drought and heat reduce crop conditions dramatically. This would, of course, drop production as well.

Andrew Gottschalk of Hedgers Edge pointed out that in years of extreme crop stress as this year may well be, acreage abandonment was often in the low to mid teens percentage-wise. At the moment, USDA estimates abandonment will be 7 to 8 percent. This would be below last year’s abandonment levels despite last year’s crop ratings being better than they are currently.

Gottschalk also pointed out low-end industry estimates for yields. If the low yield estimate of 140 bpa was taken, assuming all other elements equal with the USDA report, that would drop corn production for the 2012/2013 year by 524 million bushels. This potentially would have large impacts on corn production levels, supply, end stocks and average prices.

Other analysts and industry authorities expect rationing in the market, bringing projected demand in all areas of use down. Feed and residual uses were adjusted down 650 million bushels, from 5.45 billion to 4.8 billion bushels. Corn for ethanol production was estimated down only 100 million to 4.9 billion bushels. Forecasting an effort to protect the domestic supply, exports expectations are down 300 million bushels to 1.6 billion bushels.

Though estimates of beginning stocks and imports were both increased from the June report—from 851 million to 903 million bushels and from 15 million to 30 million bushels, respectively—they were insufficient to counter the downward trends in other areas. Ending stocks were projected down 698 million bushels to 1.18 billion bushels.

USDA estimated average farm price paid per bushel (pb) will be $5.40-6.40 due to the shortage. This is up considerably from June’s posted projections of $4.20-5 pb. In the “what if 140 bpa yield?” scenario, Gottschalk projected a price of $6.20 pb and up.

Domestic corn woes are expected to translate heavily onto the global market.

Overall world production estimates dropped from 949.93 metric tons to 905.23 metric tons with much of the reduction resulting from U.S. reductions. The losses on the U.S. production are offset slightly by gains in EU-27 countries and Canada, these due to larger reported area of planting than in previous estimates.

In soybeans, estimates for area planted and harvested increased from June predictions—up 2.2 million and 2.3 million acres respectively—but that has been more than negated by reduced yield expectations which fell from 43.9 bpa to 40.5 bpa. Like corn, the reduced yield estimates reflect the impact of drought and extended heat in primary growing regions on crop conditions.

Estimated production fell in collusion with the decreased yield, down 155 million bushels from June’s estimates to 3.05 billion bushels.

Beginning stocks were also reduced, from 175 million to 170 million bushels. Imports are expected to remain steady with June predictions, but exports are forecasted to drop 115 million bushels to 1.37 billion bushels.

Overall soybean ending stock estimates dropped slightly to 130 million bushels from June’s projection of 140 million bushels. The estimated average price paid per bushel gained a dollar on each end of the range from June’s forecasted $12-14 pb.

Reflecting the drop in overall soybean production estimates, predictions of specific soybean products such as oil and meal were also adjusted down. Soybean oil production forecasts were reduced 400 million pounds to 18.4 billion pounds, and ending stock estimates were dropped 130 million pounds to 2.01 billion pounds.

Soybean meal figures were also lowered. Meal production fell 800,000 short tons from June’s estimate of 39.14 million short tons. Ending stock estimates for soybean meal remained steady at 300,000 short tons but this is likely only in part to reduced anticipated export—down 300,000 short tons to 8.1 short tons—and expected decreases in domestic disappearance.

Following production decreases in the U.S., world production estimates of soybeans dropped 3.87 million metric tons (mmt) to 267.16 mmt. Beginning and ending world stock estimates also decreased to 52.51 mmt and 55.66 mmt, down 850,000 metric tons and 2.88 mmt, respectively.

Soybean oil production and ending stock predictions were down for the world, despite increases in beginning stock estimates. World soybean oil production estimates were reduced to 43.33 mmt, down from June’s 43.62 mmt. While beginning stock estimates were increased 180,000 metric tons to 2.98 mmt, it was not enough to offset the decreased production. Ending stocks were adjusted down to 2.23 mmt, 100,000 metric tons below June’s predictions.

World soybean meal production predictions were dropped 1.3 million metric tons in July. Despite this, expected drops in use and increases in world beginning stocks compensate for the reduction in other areas. The July projected world ending stocks for soybeans gained 280,000 metric tons to stand at 8.59 mmt.

For wheat, area planted increased slightly, from 55.9 million acres estimated in June to 56 million acres. Anticipated acreage harvested dipped 400,000 acres to 48.8 million acres. Unlike the other major crops, however, yield estimates for wheat increased, from 45.4 bpa to 45.6 bpa. The slight increase in yield could not cover the decrease in expected harvested acreage, so production estimates fell from 2.23 billion to 2.22 billion bushels.

Wheat imports are projected to stay steady, but an increase in expected export—up 50 million bushels to 1.2 billion bushels—and an increase in overall use dropped anticipated ending stocks 30 million bushels to stand at 664 million bushels. This has, in turn, upped expected average prices paid per bushel to $6.20-7.40, up from June’s average of $5.60-6.80.

World wheat production estimates were adjusted down despite upward alterations to the beginning stocks.

This time it is not the U.S.’ production dips leading the way, rather reductions in Russia’s, Kazakhstan’s and China’s production accounting for most of the adjustment. Global production is estimated at 665.33 mmt, down from June’s prediction of 672.06 mmt.

While global beginning stock estimates for wheat rose 1.62 mmt to sit at 197.18 mmt for July, the decreased production helped drop world wheat ending stock estimates to 182.44, down 3.32 mmt from June’s report. — Kerry Halladay, WLJ Editor