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338.13
A46
1881
•
The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Letter
HOG NUMBERS DOWN, BUT UPTURN NEAR
The U.S. Department of Agriculture's latest survey shows
hog numbers still lag year-earlier levels. As such, pork production will likely remain below year-earlier levels through
the coming winter months. But several factors, including
sharp cuts in sow slaughter since May, the lengthening period
of modest producer earnings since spring, and the rapidly
growing prospects for stronger earnings in the months
ahead suggest an upturn may be at hand. Indeed, the nominal decline in producers' farrowing intentions, if supplemented with continuing gains in productivity, would
suggest that the number of pigs born and raised this fall
and winter will exceed the year-earlier level.
•
•
October 1996
Number 1881
The release of the September 1 hog inventory estimates coincided with another round of downward revisions to the quarterly estimates dating back to June 1995.
The revisions in total were substantial, compounding the
deterioration in recent years of the reliability of these estimates. Reflecting this, the 90 percent confidence interval
for the estimate of all hogs and pigs has widened from plus
or minus 1.6 percent four years ago to 4.0 percent now.'
Similarly, that for the pig crop estimate has widened from
2.3 percent to 6.1 percent. The changing structure in hog
production has probably added to the difficulties in compiling accurate estimates. The USDA has recently altered its
estimating procedures. And the initial views of some analysts
are that thtember estimates seem to line up with other
benchmarks better than earlier quarterly estimates. Nevertheless, the wider confidence intervals serve as a reminder that
the forthcoming developments in the hog market may unfold
in a different manner than the current estimates imply.
hog farmers would seemingly support—and could enlarge—the intended farrowings. If that is the case, and if
the uptrend in pigs weaned per litter continues, the fall/
winter pig crop may register a year-over-year gain of 1 or
2 percent or more.
The changing geographical balance in hog production was evident in both the new and the revised estimates.
Only 5 of the 17-major hog states with individual estimates
had larger inventories than a year ago. Those states and
their reported gains were Oklahoma, 45 percent; Kansas,
21 percent; North Carolina, 15 percent; Arkansas, 6 percent;
and Missouri, 1 percent. The remaining 12 major states
posted a collective inventory decline of 10 percent while all
minor states, as a group, posted a far more modest decline
of 3 percent. Hog numbers in Iowa, the top-ranked state,
were down 9 percent. The other four states comprising the
Seventh Federal Reserve District posted declines ranging
from 8 percent in Michigan to 13 percent in Indiana and
Wisconsin. The inventory of hogs held for breeding purposes
was down a fairly uniform 11 percent among District states.
But the weakest farrowing intentions were reportedly in Iowa.
In what may prove to be a bell-weather shift in hog production rankings, the intentions imply producers in North Carolina will farrow more sows this winter than those in Iowa.
Higher prices have offset sharply higher production
costs for most hog farmers
dollars per cwt.
60
The latest estimates show the inventory of hogs intended for market was down over 4 percent from a year
ago while the inventory of hogs held for breeding purposes was down nearly 2 percent as of September 1. Despite
the smaller inventory of breeding stock, producers intentions' suggest sow farrowings will nearly match year-earlier levels this fall and winter. Sharp declines in grain
prices (feed costs) since July, the improving prospects for
the fall harvest, and the likelihood of stronger earnings for
'A 90 percent confidence interval of plus or minus 4 percent implies the
chances—based on past revisions—are 9 out of 10 that the final estimate
will not deviate from the initial estimate by more than 4 percent.
1990
'91
'92
Source: Iowa State University.
'93
'94
'95
'96
The current downturn in pork production started in
the summer of 1995 and will likely extend through the upcoming winter quarter. Production through the first three
quarters of this year was down 4 percent. Pork production
will reach a seasonal high this fall, but the year-over-year
comparisons for both the fall and winter quarter are likely
to register declines of 4 or 5 percent. The farrowing intentions for this fall, assuming trend increases in weaning
rates and in dressing yields, imply pork production in the
second quarter of next year would turn up 3 or 4 percent.
Somewhat more modest gains are now indicted for next
summer. But improving profit margins in the near term
could significantly widen the second-half expansion in
pork production next year.
The prospects for competing supplies of meat are
mixed. After a sizable first half increase, beef production
turned lower this summer. USDA analysts now project
that beef production will remain at or below year-earlier
levels through the first half of next year. For the second
half, however, gains of 4 to 6 percent are projected. Poultry
production continues on the upswing, with year-to-date
gains of nearly 6 percent. Although the rise may be
trimmed slightly this fall and winter, USDA analysts are
expecting the gains to return to around 6 percent during
the spring and summer quarters of next year.
Demand conditions will also influence hog prices in
the months ahead. Domestic demand this year has been
buoyed considerably by the expanding use of pork in fast
food restaurants and the continued growth in employment
and earnings that has supported consumer food expenditures. Moreover, foreign demand was especially strong in
the first half before Japan imposed special temporary tariffs
on pork imports. Domestic demand is likely to hold up
well in the months ahead although additional gains from
new menu selections may not be as apparent as this year.
Foreign demand for all meats is projected to strengthen
again next year. This is reflected in the latest USDA projections which point to a 37 percent rise in net pork exports
and a rise of 18 percent in net exports of all meats next
year. Net export gains of this magnitude imply the rise in
domestic meat supplies next year will be less than indicated by the current production estimates.
These prospects foreshadow a fairly strong hog market in the months ahead, with quarterly average hog prices
through most of next year likely fluctuating between the
low $50's to the high $50's per hundredweight. Moreover,
based on current harvest prospects, producer earnings will
be further enhanced by lower average grain prices and
feed costs. As indicated by Iowa State University, the cost
to produce hogs marketed by a typical farrow-to-finish
producer was up 20 to 25 percent this spring and summer.
During the third quarter, the higher costs pushed the break-
even price up to about $54 per hundredweight. Although
protein prices remain high, corn prices have retreated to the
lowest level in a year. This should translate into sharply
lower break-even costs of production in the months ahead.
Gary L. Benjamin
OUTLOOK IMPROVES FOR THE FALL HARVEST
The U.S. Department of Agriculture (USDA) released two reports on October 11 that shed considerable light on the prospects for the fall harvest. Reflecting favorable weather this
fall, the Crop Production report indicated an improved production outlook for corn and soybeans relative to a month
earlier. Furthermore, the production estimates point to solid
gains from last year. However, the World Agricultural Supply
and Demand Estimates imply utilization of these crops will
be little changed from last year, suggesting that ending
stocks will rise to more comfortable levels. And though
corn and soybean prices recently moved lower, the average
prices received by farmers in the 1996/97 marketing year
are expected to be relatively strong.
The October projection for soybean production came
as a surprise to many observers. One survey of analysts
conducted prior to the report's release suggested that—on
average—little change was expected from the prior
month's forecast. However, the USDA raised its production forecast for soybeans by 3.4 percent (about 76 million
bushels) from the September prediction. About two thirds
of the increase was accounted for by four Midwest states—
Illinois, Indiana, Ohio, and Minnesota. In comparison, the
forecast for the corn harvest was increased by 2.4 percent
from the prior month, slightly more than expected. Again,
the bulk of the improvement came from the Midwest.
However, Wisconsin was the only state to have its production prospects for both corn and soybeans downgraded
from the prior month.
The fall harvest is shaping up better thattiftty would
have believed earlier this summer, reflecting concerns over
maturity and frost that stemmed from the late planting season. But warm, dry weather allowed an increasing share of
the corn crop to reach maturity in recent weeks, and production is now expected to rise by over a fifth from a year ago.
Though well below the record high of two years ago, the
current projection of 9.0 billion bushels would still be the
third largest corn harvest ever. Similarly, soybean production has benefited from good weather this fall. An increase
in the number of acres harvested and higher yields relative
to last year is expected to expand production by about 8
percent to 2.3 billion bushels, a level of output exceeded
only by the 1994 harvest. Furthermore, if the weather continues to be favorable, the actual harvest for both corn and
soybeans may well eclipse current projections.
U.S. corn and soybean balance sheets
1990/91-1994/95
average
1995/96
million bushels)
1996/97*
Beginning stocks
Imports
Production
1,386
12
8,265
1,558
17
7,374
426
10
9,012
Total supply
9,663
8,949
9,448
5,017
1,522
1,695
4,725
1,583
2,215
4,925
1,670
1,950
8,234
8,522
8,545
1,429
$2.30
426
$3.24
903
$2.80-3.20
Beginning stocks
Imports
Production
269
4
2,098
335
5
2,177
183
5
2,346
Total supply
2,371
2,517
2,535
Crush
Exports
Seed & residual
1,280
688
115
1,370
845
118
1,375
850
115
Total use
2,083
2,333
2,340
288
$5.75
183
$6.77
195
$6.50-7.40
•
Corn
Feed & residual
Food, seed, & industrial
Exports
Total use
Ending stocks
Average farm price
Soybeans
Ending stocks
Average farm price
•
•
*USDA projection.
Source: U.S. Department of Agriculture.
The USDA data also indicated that corn production in
Seventh District states is expected to be up sharply this fall
when compared to a year earlier, fueled by increases in acreage and yields. However, the outlook is far from uniform
across the individual District states. The number of corn acres
harvested is expected to rise from a year ago in each District
state, while higher per-acre yields and production are expected in Illinois, Indiana, and Iowa. Alternatively, corn production is forecast to decline in Michigan and Wisconsin due to
lower yields. In comparison, a record high number of soybean
acres hannele‘in each District state is expected to offset flat
or declining yields and raise combined production by a modest 1 percent from last year. The pattern of soybean production across District states is identical to that for corn, with
year-over-year gains projected for Illinois, Indiana, and Iowa
and a decline anticipated for the other two states.
Despite the large gain in corn production, the increase in total supplies is limited to a considerably more
modest 6 percent because of the historically low level of initial stocks. However, total utilization of corn in the 1996/97
marketing year is not expected to change much from the
prior year as gains in domestic use are offset by a decline in
exports. Coarse grain production is expected to rise in the
rest of the world and dampen opportunities for U.S. exports in the coming year. Indeed, corn exports are off to a
slow start in the current marketing year (beginning September 1) when compared to a year ago. Export commitments
(shipments plus outstanding sales) were down a fifth from
the high level of last year as of early October. In contrast,
corn for food, seed, and industrial use is projected to benefit from a rebound in ethanol production and rise 6 percent
from the prior year. Furthermore, the amount of corn fed
to livestock will be augmented by gains in red meat and
poultry production. On balance, ending stocks are expected to more than double to about 903 million bushels, yet remain low by historical standards.
Aggregate levels of supply and use for soybeans in
the upcoming marketing year are not expected to change
much from the past year. Low initial stocks will hold the
gain in total supplies to less than one percent. Furthermore, domestic use and exports are each projected to rise
less than one percent from last year. While foreign sales
will likely benefit from lower oilseed production outside
the U.S. and larger Chinese purchases, Brazil is expected to
provide additional competition by expanding the number
of acres planted to soybeans this fall by 6 percent. In sum,
ending stocks are currently projected to register a moderate
gain of about 7 percent to 195 million bushels.
Corn and soybean futures prices moved decidedly
lower in the weeks leading up to mid October as the harvest
progressed. From late August though October 15, December
corn futures dropped over 60 cents per bushel. November
soybeans lost about $1.20 per bushel over the thirty day period ending October 15. In line with this weakening, the
USDA revised downward the corn and soybean price projections for the 1996/97 marketing year in its October report.
The midpoint of the corn projection was $3.00 per bushel,
about 7 percent below the past marketing year's average.
The midpoint for soybeans was $6.95 per bushel, slightly
higher than last year's average. Although low relative to the
prices experienced this summer, these projections are well
above the average prices received by farmers over the five
year period ending with the 1994/95 marketing year.
Mike A. Singer
AgLeiter (ISSN 1080-8639) is published monthly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared by
Gary L. Benjamin, economic adviser and vice president, Mike A. Singer,
economist, and members of the Bank's Research Department, and is
distributed free of charge by the Bank's Public Information Center. The
information used in the preparation of this publication is obtained from
sources considered reliable, but its use does not constitute an endorsement of its accuracy or intent by the Federal Reserve Bank of Chicago.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
PO. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111
Ag Letter is also available on the World Wide Web at
http://www.frbchi.org.
SELECTED AGRICULTURAL ECONOMIC INDICATORS
Percent change from
Prices received by farmers (index, 1990-92=100)
Crops (index, 1990-92=100)
Corn ($ per bu.)
Hay ($ per ton)
Soybeans ($ per bu.)
Wheat ($ per bu.)
Livestock and products (index, 1990-92=100)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (0 per doz.)
Consumer prices (index, 1982-84=100)
Food
Latest
period
Value
Prior
period
Year
ago
Two years
ago
September
September
September
September
September
September
September
September
September
September
September
115
124
3.58
90.10
7.85
4.19
105
54.80
67.80
16.20
76.8
-0.9
-4.6
-16.7
-3.0
0.4
-8.5
1.9
-9.1
6.3
2.5
3.2
10
8
33
9
31
-8
12
11
9
27
13
19
September
September
158
155
0.3
0.6
3
4
426
183
1,724
2.26
1.39
10.7
N.A.
N.A.
N.A.
3.0
4.1
-2.7
-73
-45
-8
-2
-7
-1
June
June
June
June
15,589
7,445
7,327
818
7.4
10.1
-4.3
808.9
16
16
6
390
36
7
234
July
July
July
July
4,456
148
46
111
1.9
8.0
-11.1
45.8
12
-23
12
18
42
59
170
51
September
September
September
September
4,783
3,263
1,520
899
5.4
5
1
14
3
-4
22
63
10
44
17
15
52
3
27
26
6
7
Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Wheat stocks (mil. bu.)
Beef production (bil. lb.)
Pork production (bil. lb.)
Milk production* (bil. lb.)
September 1
September 1
September 1
August
August
September
Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments
Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)
-50
-12
-17
2
-7
0
24
Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines
N.A. Not applicable
*22 selected states.
**Includes net CCC loans.
-2.1
26.0
40.5
7
-22
16
0
Agletter is printed on recycled paper
using soy-based inks
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