October 2, 2006- A burdensome meat supply should be over, according to our estimates, for the next nine months. This does not mean the poultry industries should rapidly increase output. Per capita income does not allow much leeway in consumers’ food budgets with higher interest rates counteracting the lower energy costs. Also, inflation is beginning to bite into the take-home paycheck for most. So far, inflation has been mild but could easily pick up the pace. A mild recession may occur in 2007 or 2008.
Per capita meat supply is expected to ease lower, led by the chicken industry and pork producers. Consolidation in these two industries has provided the strength to reduce output when it appears red ink could flow. The broiler industry seems to take the lead with cutbacks in RTC production since April-June. This helped support seasonal strong summer values. History indicated that was unexpected going into producers’ peak summer profit period. Now with reduced supplies during the next several months, our 12-city whole-bird values have been increased. New chicken products enhance consumer taste buds, helping boost chicken demand. Through September 9, 2006, combined red meat production was up 3.8 percent. Thus, it was surprising that chicken demand remained as strong as it has.
Livestock and poultry feeders have benefited from inexpensive feed during 2006. In crop year 2006-07 U.S. corn supplies could be up 1.4 billion bushels, but total usage is estimated to exceed a year ago by 700 million bushels. This may reduce ending stocks next September 1 to around 1.2 billion bushels, very close to ending stocks in 2002-03. Thus, corn prices may be up 25 to 40 cents a bushel from a year ago. World coarse grain supply will be under 2005-06 levels, encouraging record U.S. exports of corn. Also, ethanol production could take over 2.1 billion bushels, and still new operations will come on stream in the next few years. A large world crop is needed in 2007-08.
U.S. oilseed supply is huge, which should keep prices very reasonable. Ending stocks on September 1, 2007, will likely be 50 million bushels greater than their level on September 1, 2006, of 485 million bushels. These two crop years probably had the largest ending stocks in many years. As with corn, yields were very good due to timely rain and a great growing season.
South America’s oilseed crop could be off some in 2007 as farmers reduce hectares planted, because of low returns in 2006 and weak government financing.
Our October-March projection for corn prices is $2.15 versus $1.91 per bushel in the same period last year. Our estimate for soybean meal prices October-March is $170 per ton versus $177 per ton in the same period last year.