Market Watch

In its February report, USDA’s World Agricultural Outlook Board revised projections of 2009-10 marketing year corn and soybean exports.

U.S. corn exports for the current marketing year are projected at 2 billion bushels - 50 million below the January projection, but 142 million above the very low level of a year ago. The projection is 437 million bushels below the record exports established in the 2007-08 marketing year.

From Sept. 1, 2009, through Feb. 4, USDA reported corn export inspections of 694 million bushels, 14 million more than the previous year. From September through December 2009, Census Bureau exports exceeded export inspections by 51 million bushels.

“Last year, Census Bureau estimates through February exceeded inspections by 35 million bushels,” said University of Illinois economist Darrel Good. “If the 51-million-bushel margin has been maintained since December this year, cumulative exports are about 30 million larger than those of a year ago.

“To reach the USDA projection of 2 billion bushels for the year, weekly shipments need to average about 42.2 million bushels from now through August. To date, exports have averaged only 33.2 million bushels per week.”

As of Feb. 4, USDA reported 469 million bushels of corn have been sold for export, but not yet shipped. Unshipped sales a year earlier totaled only 373 million bushels. Export commitments, or shipments plus sales, are currently near 1.21 billion bushels.

According to Good, weekly sales now need to average about 26.6 million bushels per week in order for commitments to reach 2 billion bushels. For the four weeks ending Feb. 4, sales averaged 41.1 million bushels.

“The pace of outstanding export sales is encouraging, but the pace of shipments will have to accelerate substantially to reach the projection of 2 billion bushels.”

U.S. soybean exports during the current marketing year are projected at 1.4 billion bushels, 25 million bushels above the January projection and 117 million bushels above the record exports of a year ago. From September 2009 through Feb. 4, USDA reported export inspections of 978 million bushels, 262 million above the cumulative total of a year ago.

From September through December 2009, Census Bureau soybean export estimates exceeded inspections by 15 million bushels. Through February 2009, Census Bureau estimates exceeded inspections by 42 million bushels.

“If the 15-million-bushel difference between the Census Bureau and inspections estimates has been maintained since December, current exports exceed those of a year ago by 235 million bushels,. To reach the USDA projection of 1.4 billion bushels for the year, weekly shipments need to average 13.7 million bushels per week from now through August 2010. To date, exports have averaged 44.3 million bushels per week.”

As of Feb. 4, USDA reported 313 million bushels of soybeans have been sold for export, but not yet shipped. The total of those outstanding sales was 222 million bushels a year ago.

Source: Darrel Good, 217-333-4716, d-good@illinois.edu

• Market Watch
• Harvest Reports
• Corn
• Photo: Soybean Field in Nebraska

The sharp decline in winter wheat seedings in 2009 has analysts guessing how that acreage will be divided among spring-planted crops in 2010. It’s an important question that will affect grain markets in the coming months.

“The first question is, how many of these acres will get planted to all crops?” said Darrel Good, University of Illinois Extension economist. There are 6.2 million unplanted acres of winter wheat and the 2.4 million acres of Conservation Reserve Program (CRP) contracts that matured in 2009 and were not extended.

The acreage of principal crops planted in the United States varied by 13.1 million acres over the past 10 years. Planted acreage plus CRP acreage varied by 9.6 million acres.

“The recent peak in planted acreage was in 2008, following four consecutive years of declines from 2003 through 2006. High prices and generally good returns resulted in a 9.4-million-acre increase in total plantings from 2006 to 2008.

“Planted acreage declined by 5.7 million acres in 2009 even as CRP acreage declined by 1.1 million. Total planted acreage may or may not increase in 2010, depending on prospects for crop returns in the spring. It is difficult to anticipate the magnitude of total planted acreage.”

Planting decisions for individual crops in the spring of 2010 will be influenced by crop prices, prospects for net returns for completing crops, and spring weather conditions.

“There is some concern that the late corn harvest in 2009 has resulted in the need for more than the usual amount of spring tillage and fertilizer application. Planting corn after corn may be particularly challenging in some areas due to the lack of fall tillage and rough field conditions due to harvesting under wet soil conditions. An early, open spring would be helpful for catching up with field work.”

Rather than trying to anticipate farmer planting decisions with so many factors unknown, it might be more useful to ask how many acres of each crop are needed in 2010.

“The focus here is on corn acreage. The number of corn acres needed for harvest in 2010 depends the magnitude of stocks at the beginning of the 2010-11 marketing year; the desired level of stocks at the end of the 2010-11 marketing year; the 2010 U.S. average yield; and the size of the market for U.S. corn during the 2010-2011 marketing year.”

The USDA currently projects that stocks of U.S. corn at the end of the current marketing year will total 1.764 billion bushels.

“A comfortable year-ending inventory, reflecting neither shortage nor surplus, is probably around 1.5 billion bushels.

“Domestic use of corn for ethanol consumption will increase a minimum of 200 to 300 million bushels due to the mandates for renewable fuels production. Domestic feed use may decline modestly due to the increased feeding of distillers’ grains and stable livestock numbers. Exports of U.S. corn may increase modestly if world wheat production fails to remain at the extremely high level of the past two years and China does not have exportable corn supplies.

“Consumption of 13.25 billion bushels of U.S. corn seems reasonable for the 2010-11 marketing year, suggesting that production needs to be near 13 billion bushels.”

The number of acres needed to produce 13 billion bushels of corn in 2010 obviously depends on the U.S. average yield.

“The best guess at this time is for a trend yield in 2010. The calculation of trend yield depends on the base period for calculating trend and whether the calculations are based on the trend of actual yields or the trend of yields adjusted for variations in weather conditions. We use the period 1960 to 2009 and weather-adjusted yields to calculate trend.

“Trend yield for 2010 is 158 bushels, well below the record yield of 165.2 bushels in 2009.”

A yield of 158 bushels implies the need to harvest 82.3 million acres of corn for grain in 2010, requiring planting of about 89.5 million acres. That is about three million acres more than were planted in 2009. The USDA will release the results of its survey of farmer planting intentions on March 31.

Source: Darrel Good, 217-333-4716, d-good@illinois.edu

• Market Watch

U.S. beef and pork exports continued their rebound from the slump earlier in the year, with pork exports reaching their highest level of 2009 in November while beef exports edged 4 percent above year-ago levels, according to statistics released by the U.S. Meat Export Federation (USMEF). In addition, lamb exports maintained their pace for an outstanding year.

For the month, total pork (muscle cuts plus variety meat) exports reached 169,547 metric tons (373.8 million pounds) – essentially even with the volume for November during the record-shattering pace of 2008. This marked the first time monthly pork exports have reached or exceeded 2008 levels since March of 2009.

November’s total beef exports reached 76,693 metric tons (169 million pounds), with muscle cuts enjoying a 23 percent hike over year-ago levels while variety meat slipped 27 percent.

While the export increase is a positive sign that economic indicators around the globe are pointing up, total beef and pork exports remain behind 2008 levels. For the first 11 months of 2009, the U.S. has exported 819,778 metric tons (1.8 billion pounds) of beef valued at more than $2.8 billion and 1.7 million metric tons (3.7 billion pounds) of pork valued at nearly $4 billion.

Beef is down 10 percent in volume and 16 percent in value compared to 2008 while pork is down 10 percent in volume and 13 percent in value.

Lamb and lamb variety meat exports maintained a fast pace with a 41 percent jump in volume over November of 2008 accompanied by a 14.7 percent boost in value. For the first 11 months of the year, total lamb exports are up 50 percent in volume and 13 percent in value. Mexico, Canada and the Caribbean rank No. 1, 2 and 3 in U.S. lamb export volume while the Caribbean holds the top spot for lamb export value.

Pork Stimulus Package

“We are devoting significant resources to pork marketing this quarter with the support of $1.35 million in additional funding from the soybean industry at the end of 2009,” said Philip Seng, USMEF president and CEO. “The response from the soybean industry to support pork exports is very gratifying,” said Seng, referring to the “2009 Pork Stimulus Package” funded by the Minnesota Soybean Research and Promotion Council, United Soybean Board, Nebraska Soybean Board and South Dakota Soybean Research and Promotion Council.

By combining the fund with matching funds from the Market Access Program, the Foreign Market Development program, third-party contributions and other non-checkoff funds, USMEF has been able to leverage the contributions into a pool of more than $4 million for a concerted pork marketing push in Japan, Mexico and South Korea.

Mexico remains the volume leader for total U.S. pork exports, purchasing 451,483 metric tons (995.3 million pounds) valued at more than $672 million through the first 11 months of 2009 – a 30 percent hike in volume and 9 percent in value over last year.

Japan remains the value leader for U.S. pork, importing 388,596 metric tons (746.5 million pounds) valued at more than $1.4 billion – a 7 percent drop in volume and 1 percent drop in value compared to last year.

The biggest contributors to the decline in U.S. pork exports in 2009 are China and Russia, both of which imposed barriers to U.S. pork related to the H1N1 virus while attempting to rebuild domestic swine herds. Pork exports to the greater Hong Kong/China region are down 39 percent in volume and 42 percent in value thus far this year, while exports to Russia are down 38 percent in volume and 41 percent in value. Together, they account for 80 percent of the year’s drop-off in the value of U.S. pork exports and 116 percent of the volume decline.

The most significant gains in 2009 pork exports have been reported in Mexico, the Philippines (38 percent increase in volume and 32 percent in value), Taiwan (38 percent in volume and 28 percent in value) and the Caribbean (21 percent in volume and 13 percent in value).

Beef trends

The top markets for U.S. beef (muscle cuts plus variety meat) through the first 11 months of 2009 based on volume continue to be Mexico, followed by Canada, the Middle East, Japan and the ASEAN (primarily Vietnam). When measured in value, Mexico remains the leader, followed by Canada, Japan, South Korea and the ASEAN.

Negative publicity surrounding beef trade with Taiwan may have impacted that market’s performance, as beef exports declined in November when compared to the previous month. However, November beef exports to Taiwan still exceeded year-ago levels by about 3 percent in volume and more than 16 percent in value.

Beef exports to Mexico continue to slump as that country remains plagued by the lingering economic downturn. Total U.S. beef exports year-to-date are down 27 percent in volume and 35 percent in value. The downturn in this one key market alone accounts for 98.2 percent in the decline in beef export volume compared to 2008 and 82.7 percent of the decline in the value of exports versus last year.

“Our neighbor to the south is a critical partner for the U.S. beef industry,” said Seng. “While the economic challenges there are considerable, our team in Mexico is working diligently in partnership with retailers and food service to rejuvenate their marketing programs and raise the visibility of U.S. beef.”

Exports to Canada also have declined this year – down 8 percent in volume and 12 percent in value.

The most significant gains in U.S. beef exports have come from Japan (up 23 percent each in volume and value), the ASEAN (up 21 percent in volume and 20 percent in value) and the greater Hong Kong/China region (up 139 percent in volume and 97 percent in value).

“Despite the limitation on beef exports to Japan from cattle under 21 months of age, we continue to regain market share there,” said Seng. “Our team in Japan is working very hard to maintain that momentum in 2010 with partnerships like the one that just started with Gust Restaurant chain where our goal is selling 1.5 million chuck eye roll steaks in a three-month promotion. That kind of collaboration with our retail and food service partners is essential to sustaining our export growth.”

Source: U.S. Meat Export Federation

• Market Watch
• Beef
• Pork

The prices of corn, soybeans, and wheat remain under pressure a week after the release of the USDA reports revealing surprisingly large supplies. Soybean prices were declining before the reports were released, but March 2010 futures have declined an additional $.40 in the past five trading sessions. March 2009 corn futures have declined about $.50, and March 2009 wheat futures are down about $.70.

Price declines have been larger than anticipated. The large decline suggests that the market has overreacted to the new information and/or that prices are reflecting additional factors. First, the late harvest suggests more uncertainty about the 2009 corn and soybean production estimates and the December 1 stocks estimates than would typically be the case. More clarity will be provided in March.

For soybeans, marketing year supplies are estimated to be 322 million bushels larger than supplies of a year ago. However, stocks as of December 1, 2009 were only 61 million larger than stocks on December 1, 2008. The relatively small December 1 stocks estimates this year reflects the extremely large level of exports during the first quarter of the marketing year and a modest increase in the domestic crush. In addition, the calculated seed, feed, and residual use of soybeans during the first quarter of the marketing year was also very large, totaling 185.3 million bushels. That is double the disappearance of a year ago and 45 million larger than the previous record use in 2003. On the surface, the large disappearance suggests the 2009 crop may have been over estimated. That possibility cannot be confirmed until the March 1 stocks estimate is released.

Both the pace of exports (sales and shipments) and domestic crush remain at a rate above that required to reach the USDA’s projection for the year. Both are expected to decline as the year progresses and the South American crop becomes available. Some areas of late season dryness in South America could result in a slightly smaller crop than currently projected. The rate of use, then, should be a supportive factor.

For corn, the estimate of December 1 stocks implied a 6.5 percent year-over-year increase in the domestic feed and residual use of corn during the first quarter of the year. The large increase is counter-intuitive given poor livestock margins and large increases in the availability of distiller’s grains. The large level of use may also imply an over-estimate of the 2009 crop. The uncertainty surrounding the production and stocks estimates due to the late harvest preclude conclusions at this point. In the mean time, the pace of new export sales and weekly shipments remain well below the pace needed to reach USDA’s projection of marketing year exports.

For wheat, the projection of large year ending stocks was decidedly negative for near term price prospects. The pace of new sales and weekly shipments remain below the pace needed to reach even the extremely low level now being projected by the USDA. Fundamentally, the large decline in winter wheat seedings offers some opportunity for a recovery in prices during the 2010-11 marketing year. Harvested acreage, particularly of soft red winter wheat, could be even smaller than implied by the acreage estimates due to poor conditions in some areas. A much smaller harvest in 2010 could allow for a recovery in the soft red winter wheat basis that has been extremely weak for the past three years.

The large decline in winter wheat seedings may be problematic for corn and soybeans and other spring planted crops. The six million acre decline in winter wheat seedings along with additional acreage released from the Conservation Reserve Program opens the door for large increases in the acreage of spring planted crops. While a few more corn and cotton acres may be needed to accommodate the expected rate of consumption in 2010-11, a large South American harvest implies no need for more soybean acreage. Favorable growing conditions, then, could result in a surplus of one or more crops in 2010.

An additional concern for crop prices is the continued lackluster performance of the national economy and the persistently high unemployment rate. These factors do not bode well for demand prospects for agricultural commodities for food or fuel consumption. The lack of economic growth, along with emerging indications that Iraq could substantially increase oil production over the next several years, may prevent an increase in crude oil prices that would support the biofuels industry.

A recovery in crop prices cannot be ruled out, particularly as the new northern hemisphere growing season gets underway, but prospects are less encouraging now than just two weeks ago.

Source: Darrel Good, Agricultural Economist, University of Illinois

Another round of harvest delays is supporting corn and soybean prices, and strong demand for corn for ethanol may provide longer term support, but at some point the soybean market will suffer from a very large South American harvest, according to University of Illinois Economist Darrel Good.

Corn and soybean prices continue to trade in a relatively wide range, but are currently near the highs of the past 10 weeks. Basis levels have weakened some as harvest accelerated.

“The average cash price of corn in central Illinois peaked at $3.83 on October 22, declined to $3.41 on November 6, and stood at $3.62 on November 13. The average cash price had dipped under $3.00 in early September. The average cash price in central Illinois was $.28 under December futures on November 13, compared to about $.15 lower four weeks earlier.”

Corn prices have been supported by ongoing harvest delays as well as expectations that demand for corn-based ethanol will remain strong in the months ahead.

“Ethanol prices have moved sharply higher since late September, supported by very favorable blending margins. Reduced imports of Brazilian ethanol and some exports of U.S. ethanol have contributed to those margins. The EPA ruling on increasing the limit on blending from 10 percent to up to 15 percent will be important for determining domestic market size moving forward. It appears that the self-imposed deadline of December 1, 2009 for making that decision will not be met.”

The level of corn export sales in recent weeks has been disappointing.

“Sales averaged only 16.3 million bushels per week for the four weeks ending November 5. Sales need to average well over 30 million per week in order to meet the current marketing year export forecast of 2.1 billion bushels. Weekly export inspections averaged 26.5 million bushels per week during the five weeks ending November 12. Shipments now need to average nearly 42 million bushels per week through August 2009 in order to reach the current USDA projection.

“Some analysts believe that the generally poorer quality crop will result in higher rates of corn feeding, while others believe the poorer quality will lead to higher levels of feeding of other ingredients, particularly soybean meal. Initially, the large supply of low-priced corn screenings might result in at least a normal rate of corn feeding per animal.”

The average cash price of soybeans in central Illinois dropped below $9.00 in early October, peaked at $9.96 on October 21, and stood at $9.635 on November 13. The average cash price on November 13 was $.29 below March 2010 futures, compared to about $.11 below three weeks ago.

“Soybean prices have been supported by a rapid pace of exports and export sales. Through November 5, export commitments, or exports plus outstanding sales, stood at 68.5 percent of the total exports projected for the marketing year. For the four weeks ending November 5, new sales averaged about 31 million per week.

“To reach the USDA projection, new sales now need to average about 10 million per week. For the five weeks ending November 12, USDA export inspections averaged 55.8 million bushels per week. Shipments need to average about 23 million per week for the rest of the year to reach the USDA projection.”

The Census Bureau estimate of September 2009 exports was about 5 million bushels above the USDA estimate, indicating that USDA estimates may lag Census Bureau numbers this year, as has been the case in recent years. Export demand for U.S. soybeans will be concentrated in the first half of the marketing year and is expected to drop sharply with the availability of the South American harvest.

The domestic soybean crush was extremely small in September, but the National Oilseed Processors Association estimates showed a sharp rebound in October. The October 2008 crush estimate exceeded that of a year ago.

“Prices of corn and soybeans have also been supported by a low valued U.S. dollar and strength in the financial markets. A low valued U.S. dollar may result in importers being able to pay a higher price for U.S. commodities, but there is no historical statistical relationship between the value of the U.S. dollar and the volume of marketing year exports.”

Source: University of Illinois College of Agricultural, Consumer and Environmental Sciences

Hog prices have improved from their lows in August, but the $40 live price in the final quarter this year is more than offset by production costs estimated at $48 per live hundredweight. In September there was some optimism that feed costs would be moderate for 2010, but that optimism has faded with a $.90 per bushel increase in corn prices. Now the anticipation is that hog production costs next year for farrow-to-finish operations will be around $50.

The outlook is for hog prices to average about $46 to $47 next year, moving from about $44 in the first quarter, to near $50 in the second and third quarters, and back to the mid-$40s in the final quarter. Given the assumption of $50 costs, this would still leave $10 of loss per head, the third year in a row of losses. However, the current financial reality likely means the herd will decline, demand will improve, and hog prices will be higher than the current forecast.

There are others that believe hog prices will be higher, most importantly futures traders. Using lean hog futures at the close on November 20 and the average Eastern Corn Belt basis level over the last five years, the futures market is suggesting $50.50 for a farm level price next year, suggesting a breakeven price for 2010.

“If there is an unfortunate side to these higher prices, it is that it may increase producer/lender optimism, resulting in a smaller than needed reduction of the breeding herd. If so, selling lean futures now will be positive,” said Purdue University Extension Economist Chris Hurt.

“Clearly some operations must reduce production, or shut down, to reduce total production. There are still operations with high costs, have low efficiency, are dramatically undercapitalized, or no longer willing to risk more equity erosion. That is where the additional downsizing will come,” Hurt said.

Producers in a weak financial position who decide to hedge lean hogs with a live equivalent near $50 must cover feed costs as well.

“As bleak as the outlook seems, it is ironic that the futures market provides a way to at least get through 2010. Old timers used to say that you don’t want to be short lean on hog futures when the price cycle is ready to turn up, and that has been true in the past. When prices turned up, they tended to go much higher than anticipated, providing handsome rewards to those who stayed unsold on hogs,” Hurt said.

“But, this is a new era and old maxims may not hold. In addition, hedging today may enable some operations to continue over the next year when the lender is ready to give up. For them the new maxim may be, survive in 2010 for an opportunity to be around in 2011.”

Source: University of Illinois College of Agricultural, Consumer and Environmental Sciences

• Market Watch
• Pork

Come February, Hass avocados from Peru will be allowed to enter US markets, according to terms of the Bilateral Free Trade Agreement which came into effect in February, 2009.

“Peruvian Hass avocados will enter one of the largest markets in the world,” said Peru’s Agriculture Minister Adolfo de Cordovain a press release. “This will expand our market, benefiting thousands of producers.”

Peru has approximately 7,000 hectares planted with avocado, and could export 19,000 tons annually to the US, which is the world’s largest market for the fruit.

• Avocados

The futures market is optimistic and pork producers have a chance to lock in prices that will at least let them break even, according to Purdue University agricultural economist Chris Hurt.

“When looking forward to 2010, most analysts who predict hog prices say prices will not be as high as the cost of production. This will be the third consecutive year that pork producers are facing a loss.”

The outlook is for hog prices to average about $46 to $47 per head next year.

“Prices are expected to move from about $44 in the first quarter to near $50 in the second and third quarters, and back to the mid-$40 range in the final quarter. “Given the assumption of $50 costs, this would still leave $10 of loss per head. However, the current financial reality likely means the herd will decline, demand will improve and hog prices will be higher than the current forecast.”

However, futures traders believe hog prices will be higher.

“Using lean hog futures at the close Nov. 20 and the average Eastern Corn Belt basis level for the last five years, the futures market is suggesting $50.50 for a farm level price next year, which suggests a break even price. “If there is an unfortunate side to these higher prices, it is that it may increase producer/lender optimism, resulting in a smaller-than-needed reduction of the breeding herd. If so, selling lean futures now will be positive.”

Hurt recommended producers work with a reputable market advisory firm to lock in futures. Producers should not only lock in their hog prices, but also their feed costs, he said.

“By locking in break even prices, producers can keep from losing more money and moving backwards. This should give lenders better assurances. If a producer doesn’t break even in 2010, it’s not just the equity of the farm family that will erode, but in some cases the lenders.”
Bankers don’t want residential houses right now as foreclosures, Hurt said, and they certainly don’t want hog buildings.

They just need to know that they’re not going to lose money, he said. It’s the producer’s job to increase the lender’s confidence and give them the needed assurance.

“The biggest non-assurance in the last two years has been the markets. Lenders have two options: Do you want greater assurance that your producers won’t go backward financially in 2010, or do you want to take the chance? Lenders like lower risk.”

These are tough decisions, but the producer, lender and market adviser can work together to capture the gleam of that shining star, he said.

• Market Watch
• Pig Production

A host of economic indicators suggest that the recession has ended — with more positive than negative signs for the U.S. and the world economies — signaling a recovery for the cattle industry as well.

“Unfortunately the beef industry rode the recession downward. So far this year, through the month of September, beef production has been down by 5 percent, but finished cattle prices have been almost $11 lower than in the same period last year,” said Chris Hurt, Purdue University Extension economist.

Nebraska finished steers averaged $93.60 per live hundredweight in the period between January and September 2008. This year those values dropped to $82.75. Steer calf values have also been about $11 per hundredweight lower and feeder cattle about $9 lower.

Beef and cattle prices are generally more directly impacted by changes in economic prospects than pork or poultry markets, moving downward with recession and upward with recovery.

“The indicators of recovery are beginning to become more numerous in such data as the rise in the average length of work week, rising building permits, falling numbers of new claims for unemployment, and, of course, the rising stock market. The recovery is expected to be slow by historic standards with unemployment remaining high into 2010. However, the unemployment rate is a lagging indicator and not the one to use as the measure of recovery,” said Hurt.

Inflationary investing may be another reason cattle are underpriced.

“In the past six weeks, there has been a resurgence of inflationary buying in futures markets. This has also been related to the continued weakening of the U.S. dollar where the lead futures contract has been down 5 percent since September 1,” said Hurt.

“Since that date, the lead futures contracts for various commodities have been shooting upward: corn up 19 percent, copper and gold 5 to 10 percent higher, and crude oil up 14 percent. In contrast, the lead contract for live cattle futures has been down about 2 percent. This may well mean that cattle are cheap relative to other commodities,” he said.

The fundamentals are positive for beef as well. Production will continue to drop as both export and domestic demand improve with the recovery. USDA expects exports to increase by 3 percent over the next 12 months.

“Given that the rest of the world may recover more quickly than in the United States, and with the weak dollar, U.S. beef exports could do well. Per capita available supplies in the United States will decline by 2 percent over the coming 12 months, and competitive supplies of pork per person will be down 5 percent,” said Hurt.

While more cattle have moved into feedlots in recent months, the overall indicators suggest that the breeding herd will continue to drop in the January 2010 inventory report.

“Cheaper corn, meal, and feed ingredients late this summer did cause a larger number of lighter-weight calves to move into feedlots. In August and September, placements of cattle weighing under 700 pounds were up 8 percent while those over 700 pounds were up 1 percent. With corn and feed prices moving upward in recent weeks, it is likely that placements in October will slow once again,” said Hurt.

“Perhaps more important was that the number of heifers in feedlots on October 1 was up 4 percent, indicating a relatively low rate of heifer retention to go back into breeding herds. This supports a 1 to 2 percent drop in beef cow herd numbers in the January 2010 inventory,” he said.

The clearest threat to cattle producers is that economic recovery will be anemic or there will be a second recessionary dip, but cattle prices are expected to move upward over the coming year.

“Nebraska finished steers are expected to rise from the current low $80s to the middle $80s by the end of the year. The general pattern to higher prices is expected to continue in the first quarter with prices in the mid to higher $80s. Early spring daily highs could move into the very low $90s or higher depending on the strength of the economic recovery. Summer are prices normally are a few dollars lower, but that may not occur in the summer of 2010 as prices could stay in the low to mid-$90s,” said Hurt.

Assuming the industry is able to ride the recovery, producer pricing strategy should be fairly clear.

“Stay long in cattle, at least for now. This means retaining ownership of calves for a longer period, considering feeding out calves rather than selling them this fall, and for feedlot cattle, waiting a bit to forward price the finished cattle in order to give inflation investors a little time to locate the cattle futures trading pit,” said Hurt.

Source: Chris Hurt, 765-494-4273, hurtc@purdue.edu

• Market Watch