Falling US corn and soy prices benefit hog farmers

 

 

Sharp drops in corn and soy prices have chopped about US$2 billion from the cash value out of Iowa's grain crop in the last week, but hog producers are looking at a better year with lower feed costs and higher pork prices.

 

American Farm Bureau Federation economist Terry Francl, said corn and soy prices have returned to their levels of late 2009, which means a lost chance to reverse what the US Department of Agriculture (USDA) has anticipated to be a 34% decline in farm income this year.

 

Farmers who were active sellers a little more than week ago have retreated as the futures price of corn has fallen from US$4.25 per bushel to US$3.69 earlier this week.

 

Soy dropped by more than US$1 per bushel to US$9.63. Both declines were attributed to a USDA report of a larger-than-expected harvest after the wet, difficult conditions last fall.

 

Hog futures contracts on the Chicago Board of Trade reached US$70 per hundredweight for February and US$80 per hundredweight for June, compared with the US$50-per-hundredweight price in September.

 

On a cash value basis, Iowa's hogs have gained in collective value from less than US$3 billion to more than US$4 billion in the last three months. Hogs in recent years typically have brought between US$4 billion and US$5 billion in cash to Iowa's economy, about one-fifth the value of all farm receipts.

 

Corn farmers generally need about US$4 per bushel to profit. "All we can do now is wait to see if the lower prices bring back some demand," said Don Elsbernd of Postville, president of the Iowa Corn Growers Association.

 

Analyst Arlan Suderman of Farm Futures said in the markets, psychology is trumping economics. "Demand is strengthening, but not yet to levels sufficient to turn market sentiment," Suderman said.

 

For now, the little surge in corn prices above $4 per bushel has passed. A week ago, the Agriculture Department surprised the industry with a final harvest report of record 13.2 billion bushels of corn - 2.4 billion in Iowa - and 3.4 billion bushels of soy. That represented gains of 2% for corn over 2008 and 13% for soy.

 

The impact of last week's report knocked 55 cents per bushel out of the price of corn, which took a cumulative US$1.4 billion off the cash value of Iowa's recently harvested crop. Iowa's corn crop typically yields between US$8 billion and US$11 billion in cash receipts.

 

The Iowa soy crop is worth about a half-billion dollars less in cash value than it did shortly after January 1, when soy brought almost US$10.50 per bushel. Soy futures closed Tuesday on the Chicago Board of Trade at US$9.63 per bushel.

 

Traders had expected smaller numbers because of the wet and slow harvest.

 

The soy crop is living in the shadow of what appears to be a big South American crop. In 2009, American soy farmers had much of the world's export business to themselves after drought cut heavily into the Brazilian crop, an advantage not expected this year.