Outlook Briefs
After posting a dramatic price fall during the first week of July, grain futures appeared to have found a rock in the deep pond to stand upon in the middle of the month. Whether or not this is just a "dead cat" bounce in the long down trend or discovery of a price level that stimulates demand is yet to be seen. Crop conditions continue to offer potential for a huge crop this fall. USDA has upped the projected corn and wheat yields and held soybean yields steady. Despite improved off take projections, ending stocks will rise for the grains.
But the major concern for Georgia farmers is where prices are headed and what should they do about the current market offers. I believe that prices are at or near the bottom of the current down cycle. Yes, it is possible we could see price go lower but I think we have the odds in our favor of a low being established near these price levels.
A look at the monthly chart of futures price activity over the past several years shows us several years in which seasonal lows were established during July. Most of those year were characterized as 'big crop' years will good early season growing conditions much like this year. The knowledge of the big crop drives prices down to true value levels and demand emerges to support the market. That may be the good news. The bad news is that prices often have difficulty mounting a significant rally from the July lows without the help of late season weather problems that trim expected yields or hamper the harvest. At this point we don't know what the future will bring.
Look for corn and soybean prices to establish a bottom and begin a long slow uptrend into the harvest period. Early corn may bring a premium to nearby futures and probably should be sold. Later corn and soybeans should be marketing in a manner that maximizes the Loan Deficiency Payment and then moved into the market. Replacing the sold crop with call options will likely provide a better return than storage, especially for soybeans, while limiting the risk of a price collapse during the storage period. (George Shumaker)
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For the year beginning October 1999, the Basic Formula Price (BFP) will average between $11.15 and $12.15, according to USDA's latest supply and demand estimates. This would be a significant fall from the current year's price, so far $13.65 through the first nine months of the marketing year.
USDA expects milk production to increase 2.4% next year, on top of the 2.9% gain predicted for this year. However, commercial use is expected to increase 3.0% next year.
During the April-June quarter production in Georgia increased 1.3%. This was the first increase in production in more than a year. This increase occurred in the face of a decline of 5,000 dairy cows in the state. (Bill Thomas)
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U.S. Cattle Numbers Continue to Decline
The USDA's recently released mid-year (July 1) cattle inventory report showed that all cattle and calves in the U.S. totaled 106.8 million head. That was down 1 percent from a year earlier and was the smallest July 1 count since 1991.
As of July 1, the number of cows and heifers that have calved was 1 percent smaller than a year earlier. The number of heifers held for beef cow replacement purposes (500 lbs. and over) has continued to shrink. The July 1, 1999 beef cow replacement estimate was 4.8 million head, down 4 percent from a year ago and about the same as the very low levels of the late 1980's. So, the U.S. beef cowherd is still shrinking.
The only two categories that posted an increase or no change from a year earlier as of July 1 were heifers held as dairy cow replacements (up nearly 3 percent) and other heifers over 500 pounds (unchanged).
The 1999 calf crop was estimated to be 38.3 million head, a decline of 200,000 to 300,000 head from 1998's. The year-to-year decline in the calf crop was likely moderated by favorable conditions for calves born this past winter and spring. The size of the calf crop suggests that fed cattle slaughter in the second half of 2000 may be a little larger than many analysts previously forecast.
Still, cattle slaughter in 2000 will post year-to-year declines. Aggressive placements of cattle into feedlots and the smaller calf crop pulled the estimated July 1, 1999 feeder cattle supply outside feedlots down nearly 700,000 head (-1.6 percent) from a year earlier. All-in-all, the inventory report combined with very low grain prices confirms the positive outlook for calf prices. This Fall's markets will likely come in more than $10/cwt. higher than last year's market. Cattle prices in 2000 may increase by another $10/cwt. (John McKissick)
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