North American roundup 19 November

US cattle prices plummet as backlog remains

US cattle prices plummeted in reaction to Fridays Cattle on Feed report which announced that the industry is failing to work through the backlog of cattle as fast as hoped.

The number of store cattle entering the nations feedlots for fattening on grain rations fell by only 3% year-on-year to 2.83 million in October.

Nor was the slaughter rate of fed cattle as high as expected. The number of cattle marketed to the packing houses from the feedlots fell 2% from a year ago, to 1.77 million head during October.

Overall, the population of cattle in feedlots shrank by a mere 2% from last year to 0.76 million head, still up a worrying 7% from two years ago.

The Chicago December futures contract for live (fed) cattle dropped from just under 64¢/lb ahead of the news to 62.5¢/lb on Monday 16 November, before recovering some ground to close on Tuesday at 62.7¢/lb. In the cash market, packers bids dropped from 63¢/lb last week to 61¢ following the news on Friday.

Producers are scrambling to find good news, and pinning hopes on a US Department of Agriculture food aid package to Russia which could see 120,000 tonnes of beef shipped to Russia in the coming weeks. A seasonal rally in beef demand over the holiday period could also help to support the market.

Pig prices at a record low in USA

US pig prices have now dropped so low that commentators are no longer able to count the decades since the market was last at these levels. Estimates calculate that it must be at least thirty or thirty-five years.

The cash price has dropped to 17-18¢/lb, compared with 21¢ last week. The Chicago December lean hog futures contract settled on Tuesday (17 November) at 30.95¢/lb, down from 34.15¢/lb just under a week ago and roughly half its level in May.

In sheer desperation, the National Pork Producers Council has put out a letter to producers suggesting they each give away a pig to charity.

Clearly, the crisis is not driven by lower consumption. Consumer demand for pork is up by 7.1% from last year and pork exports have also climbed by 32% in volume terms from a year ago. If this higher demand can comfortably absorb the nations increased capacity, many must question why prices have collapsed as they have done.

Part of the problem, according to the NPPC, is that the growing supply of market-ready pigs has overwhelmed the nations packing houses. Over the past year and half, the US has lost 35,000 head of slaughter capacity to a mere 385,000 head/day.

Even though the slaughter houses are killing 2.0 million head a week, this needs to rise to 2.2 million head a week if producers are to regain any bargaining power with the packers. The NPCC wants pork packers to work through the weekends.

The other part of the problem is that retailers are failing to pass along lower costs. The retailers margins have widened from a historical average of 47% to 60% today, while the producers share of a typical retail sale has dropped from the usual 37% to a mere 21%.

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    US maize prices ease after record crop

    AS expected, maize prices have eased off over the past week as recent news of a near-record crop of 9.8 billion bushels is absorbed by the weary market.

    Not even this months strength in soya bean prices has managed to push maize prices higher. Although 94% of the harvest is completed farmers are slow to sell their crop given the unattractive market and this is creating an overhang of supply. Wet weather could have damaged outdoor maize piles but not enough to make a difference to prices.

    Attention is now turning to South America to see how the southern hemisphere grain planting progresses. With the domestic crop gathered, US maize prices are now driven by news of rainfall, or the lack of, in Brazil and Argentina.

    In the face of oversupply at home, US maize producers are further worried by reports that China could be exporting more maize, thereby damaging US prospects on world markets. On the positive side, US interest rate cuts should weaken the dollar which should make American maize more competitive.

    The Chicago December futures contract closed on Tuesday (17 November) at 219.0¢/bushel, down from 225.25¢ just under a week ago.

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    US wheat exports down

    A SEVERE drop in exports has helped drive wheat prices down in recent days. Exports plummeted to a mere 7.9 million bushels in the week ending 5 November, a fraction of the four week average at just 48%.

    In a disappointed reaction, the Chicago December futures contract dropped to a close of 288.0¢/bushel on Tuesday 17 November, compared with 292.5¢/bushel just under a week ago. US food-aid to Russia has still not translated into physical shipments of wheat.

    Indeed, there is little good news for prices these days. Future exports to China could be hurt by a feared Chinese currency devaluation, and domestic oversupply will grow with the winter wheat crop. Almost all the winter wheat crop is in the ground and 67% of the emerging crop is rated good to excellent, due to good weather conditions.

    As with maize, US wheat farmers have been able to delay selling their recently harvested summer wheat crop, thanks to Government subsidies which have helped their cashflow.

    Loan Deficiency Payments have bought time for loss-making wheat farmers. But producers will still have to bring their product to market eventually, probably in the spring, and this will depress prices in the future, analysts warn.

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    Soya beans slide back in Chicago

    FOLLOWING a 5% rally during the first half of November, US soya bean prices have lost some ground over the past few trading days in the absence of any market impetus.

    The Chicago January futures contract settled on Tuesday (17 November) at 582¢/bushel, compared with a recent peak of 587¢/bushel last Thursday.

    With the US harvest almost completed, the focus of interest is shifting to the southern hemisphere. US domestic prices are now being driven by weather conditions south of the border. Forecasts of timely rain for South American soya bean fields over the weekend pressured US prices on Friday.

    Meanwhile, bean acreage is on the rise. Farmers in Brazil and Argentina are busy planting more beans instead of wheat and maize this year, and the extra supply comes on top of a record US harvest in 1998, estimated at 2.76 billion bushels.

    Most analysts remain cautious, warning that there is a large unsold domestic crop in the USA, and many concerns surrounding the export market. On the positive side, the large quantity of beans crushed for meal and soya oil suggests strong demand for soya products and this should give some support to the market.

    During October, 142.5 million bushels of soya beans were crushed, according to the National Oilseed Producers Association, above expectations.

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