The summer heat has brought with it a little relief in the form of lower input costs for pork producers. Corn prices have declined sharply since establishing contract highs in June and early July due to crop concerns amid spring flooding. After reaching a high of nearly $8 per bushel, December 2008 corn futures are now trading around $5.60. November 2008 soybean futures topped $16.37 per bushel, but then fell to just above $13 in trading this week.
The falling prices are due to several factors such as lower oil prices, shrinking ethanol margins, slowing corn exports, increased wheat feeding and at least some signs of reductions in the swine herd. However, the biggest factors are the improvement in crop conditions and hopes of a larger crop than previously expected. On July 27, 66 percent of the crop was rated in good or excellent condition compared to only 58 percent on the same date last year. The soybean crop also has improved as 62 percent was rated asgood or excellent as of July 27. Last year, only 58 percent of the soybean crop was in good or excellent condition.
Still, weather conditions over the next two months will be a critical factor in maintaining momentum and determining yields. As of July 27, only 7 percent of the corn crop in the 18 major corn-producing states was reported in the dough stage, compared to 19 percent for the five-yearaverage. For soybeans, only 21 percent of the crop had set pods, compared to the five-year average of 38 percent. The crop delay makes it difficult to judge the yield potential, particularly for soybeans, and yield uncertainty will persist through August.
USDA's August Crop Production report will provide key data on planted corn and soybean acres and a more up-to-date grain harvest forecast. National Agricultural Statistics Service re-interviewed 9,000 farmers in mid-July to try to get a more accurate picture of actual plantings and acreage intended for harvest. That information will be incorporated into the August production forecasts, however, such data are subject to revision as the growing season unfolds.
As another consequence of this year's delayed crop scenario, USDA’s August Crop Production report has the potential to re-ignite price hikes. Given the price decline over the past three weeks, a smaller than expected production forecast may spike prices higher quickly.
Rather than hoping for the best, pork producers may want to consider covering their feed needs, or investigating insurance products to help manage risk. It could provide some valuable protection if the current improved crop status doesn’t hold up.
(See Insurance to Help Manage Your Risk, August, 2008 Pork, by Darrell Mark, Extension Livestock Marketing Specialist, University of Nebraska).