Mid-year markets spotlight

by Ron Sterk
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Prices for corn, wheat and soybeans are lower as mid-2014 approaches, but values for other key ingredients, including sugar, dairy and egg products, are higher to sharply higher. Edible oils prices are mixed. Meat prices are near record highs.

U.S. Department of Agriculture reports — monthly Crop Production and World Agricultural Supply and Demand Estimates — enhanced lower trends already evident in the major grain and oilseed crops. While it may sound like a broken record, current price trends for several items still relate back to the severe drought of 2012. At the same time, some are influenced by this year’s severe winter, ongoing rail logistics issues, droughts in the southern Plains and California, and a developing El Niño. And some price moves have resulted from outside factors, mainly political in nature.

While weather likely will be the determining factor in this year’s major crop production, conditions appear mostly good if not outstanding early in the season, at least for corn and soybeans.

The U.S.D.A. and most of the trade expect a record large U.S. corn crop near or above 14 billion bus in 2014. The U.S.D.A. in its June 11 WASDE projected U.S. corn carryover on Sept. 1, 2015, at 1,726 million bus, up 51% from this year’s estimate and up 110% from drought-reduced 2013 stocks. Global corn carryover next year is expected to be up 8% from this year and up 32% from last year. With both domestic and world corn supplies rising, prices have been slumping with nearby CME Group corn futures prices near four-month lows last week and down more than 30% from a year ago. Corn futures prices were relatively flat between $4.40 and $4.65 a bu nearby through March 2015.

Commodity futures

Soybean prices have held up better and longer than corn values and better than many analysts expected, largely due to strong demand from China, the world’s largest soybean importer. Nearby July soybean futures prices are down only about 5% from a year ago. But soybean plantings this year are expected to be up 6% from 2013 and record high. The U.S.D.A. in its June WASDE projected 2015 U.S. soybean carryover up 160% from this year. Global carryover next year is expected to jump 22% from this year and 44% from last year. New crop (November) soybean futures prices were trading about 15% below July futures last week, reflecting expectations of ample U.S. and global new crop soybean supplies.

Wheat is another story. U.S. 2014 wheat production is expected to fall 9% from last year and 14% from two years ago, and carryover on June 1, 2015, is forecast down 3% from this year and 20% from last year. But global wheat stocks are higher for both years, and U.S. wheat futures prices are lower. U.S. winter wheat production is down from a year ago due to reduced soft red winter wheat plantings last fall and severe drought in the southern Plains, the heart of hard red winter wheat production. High U.S. wheat prices relative to prices of wheat from foreign producers, especially Russia and Ukraine despite their political issues, have limited export opportunities somewhat. Wheat futures prices are down about 15% to 20% from May highs and about 15% from a year ago in Chicago and Minneapolis, with Kansas City hard red winter down only slightly on the year.

Inside the edible oil segment

Edible oil prices vary widely from year-ago levels, based mostly on the size of underlying crops. Most widely used soybean oil prices in early June were down about 17% from a year ago, nearly mirroring the 20% drop in soybean oil futures values. Soybean oil users have adequate supplies to draw from, even though soybean supplies are tight in the final months of the crop year. Even though soybean oil users are looking forward to a bumper 2014 soybean crop, cash and futures prices are nearly flat through December.


Canola oil prices are down about 20% from a year ago, largely reflecting last year’s large Canadian canola crop, even if rail logistics problems in Canada kept prices relatively high until fairly recently.

Peanut oil prices have seen the largest decline of about 30% due to last year’s large crop following two years of tight peanut supplies.

Large gains have been posted in cottonseed oil, coconut oil and lard, with the latter up nearly 30% largely reflecting demand from the biodiesel sector and reduced livestock slaughter. Cottonseed oil, which is up about 80% from a year ago, has been at nosebleed levels and basically unavailable for several months due to tight cottonseed supplies after last year’s small cotton crop. Coconut oil prices have surged about 70% from a year ago, still mostly reflecting tree losses in the Philippines from typhoon Haiyan in 2013.

What’s for breakfast?

The most dramatic ingredient price increase has been in dried egg whites, which through June 6 were more than double values from a year earlier, more than triple values from two years ago and expected to go still higher. The reason behind the meteoric rise, which has been well documented in this magazine, is seemingly insatiable demand for whites-only entrees at fast food and casual dining restaurants and frozen breakfast items in grocery stores. The demand, which began early in 2013, has usurped supplies of liquid egg whites and forced egg processors to pay sharply higher prices for the raw material needed for dried whites, which is a key ingredient in many baking mixes.

Richard Broad, vice-president of Bender-Goodman Co., Inc., speaking recently at Sosland Publishing’s Purchasing Seminar, said he could see dried egg white prices moving still higher from current levels mostly around $15 a lb. Analysts generally expect prices will keep rising until consumer pushback occurs, but so far there is little evidence that restaurants have passed much if any of the wholesale price increases on to consumers.

With the exception of yolks, which in a way have become a byproduct because of the much stronger demand for whites, other egg product prices also are up from a year ago, but much less dramatically than are whites.

Sweetener segment in flux

Bulk refined beet sugar prices at 35c to 37c a lb f.o.b. Midwest have been raised about 30% since the end of March and from a year ago. Nearly all of the impetus behind the surge in sugar prices is related to a petition from U.S. sugar producers (American Sugar Coalition) filed March 28 with the U.S. Department of Commerce and U.S. International Trade Commission claiming Mexico has and is dumping subsidized sugar into the U.S. market below fair market value and at a cost of about $1 billion to U.S. sugar producers this marketing year. The charges are being investigated and the next key date is Aug. 25, when the D.O.C. is set to issue a preliminary determination on the countervailing duty portion of the case, although some expect a negotiated agreement will be worked out prior to that. Either event is expected by many to restrict sugar imports from Mexico and possibly push prices still higher from current offers of 37c a lb f.o.b. for beet sugar and 37c and 38c a lb f.o.b. for cane, both for spot through September 2015.


In the meantime, prices are holding near 18-month highs because the market is greatly concerned supplies may be insufficient in the final quarter of the marketing year (July-September) due to potentially reduced imports from Mexico, despite the U.S.D.A. raising its forecast of imports from Mexico significantly in the June 11 WASDE. Users are growing increasingly frustrated with sugar prices they see as exorbitantly high only because of potential import restrictions. Users contend prices of 32c to 35c a lb f.o.b. Midwest beet sugar would be “fair,” providing reasonable profits for producers and more acceptable values for food manufacturers.

Unlike sugar, which is experiencing high cash prices but low futures values, cocoa powder prices are low and cocoa bean futures are at multi-year highs.

Prices for cocoa powder, used in baking mixes, chocolate milk, compound coatings and other applications, are down about 15% to 25% from a year ago, depending on grade, and are up about 10% to 15% from near five-year lows seen briefly last fall. Meanwhile, prices for cocoa butter, used mostly in chocolate, are higher than a year earlier.

The cocoa market has returned to a more typical structure of tight butter supplies and ample powder supplies. That structure was reversed (excess butter and tight powder supplies) when chocolate demand dived during the recession and users opted to use lower-priced powder in a broader range of applications.

Cocoa has been somewhat of an enigma with cocoa bean futures prices near three-year highs, cocoa powder only 10c a lb above five-year lows, global cocoa bean production coming in above expectations and chocolate demand recovering in fits and starts from declines seen during the recession. Most attribute the strength in New York cocoa bean futures, which were nearly flat from nearby through 2015 at around $3,100 a tonne last week, to speculative buying.

Fundamentally, the market appears less bullish. Powder users generally have needs covered through 2014 and into 2015, with no rush to extend ownership further due to the flat price picture in futures and seemingly adequate supplies going forward. Butter prices may strengthen if there is better evidence of a sustained increase in chocolate demand.

Kip Walk, director of cocoa for Blommer Chocolate Co., told participants at the Sosland Purchasing Seminar he expects little change in cocoa product prices over the next few months. He added that current cocoa bean futures prices, “don’t make sense” considering strong cocoa bean production.

Dairy and meat

Prices for most dry dairy products have been trending lower from 2014 highs set between February and early May, but values still were above year-ago levels for all items except lactose. Prices for dry whey and 34% whey protein concentrate were up about 20% from a year ago, nonfat dry milk values were up about 5% to 10% and lactose was down about 13%.

Prices for CME Group cheddar cheese barrels and blocks were down about 15% from mid-March highs but held about 15% above year-ago levels.

Butter prices, which peaked near $2.30 a lb at the end of May — up about 45% from the first of the year and from a year ago — posted the greatest price move among dairy products. Butter stocks went from months of oversupply (based on monthly cold storage stocks above same month year-ago levels from August 2011 to October 2013) to tightening conditions since November 2013. Butter stocks at the end of April were down 44% from April 2013, according to the U.S.D.A., and January-April butter production was down about 6% from the same period last year. Exports have been strong although the U.S.D.A. said recent high U.S. butter prices may curb export demand.

Other dairy product prices also have been influenced by strong export demand and dairy herds still recovering from high feed prices in 2013 caused by the 2012 drought and some related herd liquidation. The full impact of the current drought in California, the nation’s largest milk producing state, has yet to be realized, according to most analysts.

Finally, meat prices have soared, with retail beef prices at record highs, pulling pork and poultry prices up in their wake. U.S.D.A.-calculated boxed beef cutout values at the end of May were up about 17% from the first of the year and more than 10% from a year ago. Pork cutout values were up about 40% from Jan. 1 and up about 20% from a year ago. The rise in beef prices largely reflects the smallest cattle inventory in more than 60 years, with numbers falling due to herd liquidation and high feed prices because of the 2012 drought. Pork prices have been supported by strong beef values, as well as the loss of an estimated seven million piglets due to porcine epidemic diarrhea virus (PEDv), for which there is no cure. The U.S.D.A. expects beef prices will continue to rise through 2015, but pork and poultry values to ease moderately as production of the latter two protein sources increases next year.

Food processors have a mixed bag of ingredient supplies and prices, which will make buyers’ jobs difficult in many cases. Sourcing of sugar, some egg products and meat may be expensive in the latter half of the year, but supplies of major commodities — grains and oilseeds — and the products derived from them, likely will increase with flat to weaker prices, assuming average to favorable weather this summer, which is expected.
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