Agribusiness Weekly Update: Drought sinks packer margins

Beef
U.S. beef packer margins averaged $2.50 per head last week, sliding to a negative $18.35 by Wednesday (Aug.8 ), according to Hedgers Edge. Packer margins have declined from $77 per head during July. U.S. live cattle futures closed slightly higher Tuesday, while feeder cattle futures were helped by a sell-off in corn futures. The average retail price of beef is up 10.4% this year over last, according to USDA.                    

Hogs & Pork
Fresh pork processing margins were a net $0 per head last week, according to Hedgers Edge. Margins picked up to $1 per head by Wednesday (Aug.8). Hog supplies are tighter and rising grain costs continue to squeeze hog farmers that have been downsizing their herds accordingly to Steve Kay of Cattle Buyers Weekly. Retail pork prices rose 5.8% in the first half 2012, from a year ago, according to USDA.

Chicken
Chicken processors are seeing negative margins as corn and soybean meal prices continue to escalate. The feed cost per pound of live weight is roughly 52 cents, according to Tyson Foods CEO Donnie Smith. Processors continue to shave back production levels averaging 4% below a year ago. Wholesale boneless breast prices are averaging $1.61 per pound this week, up 3.2% from last week. Wholesale chicken prices have risen nearly 8% in the past year, according to Georgia Dock pricing on Aug. 8.

Table Eggs
Large Southeast egg prices ranged from $1.56 to $1.60 last week, up 40 cents from last year. Table egg production last week was up 5.5% from a year ago with 126,400 (30 dozen cases) processed, according to the USDA report from Aug. 3.

Grains
Cash corn prices traded Wednesday (Aug. 8) at $8.07 per bushel, rising 16% in the past month and up from $7.01 a year ago.The September corn futures closed at $7.96, corn for December delivery traded at $8, according to the Arkansas Farm Bureau. Corn prices closed the day off slightly; despite another 2% increase in the poor to very poor rating of the 2012 crop. The revision has U.S. crop at only 23% good to excellent and 50% at poor to very poor. Most of the good to excellent rated corn is outside of the major producing regions, which does not bode well for the yield estimate on Friday (Aug.10). Corn prices continue to face tough resistance around the $8.00 – $8.25 range, reports from the livestock and poultry industry indicate price above this level would signal significant domestic rationing, according to Arkansas Farm Bureau analysts.  

Cash soybean prices closed Wednesday (Aug. 8) at $16.02 per bushel, up from $12.89 a year ago. The August contract traded at $16.05, down 22 cents while November beans closed at $15.76, down 16 cents. Soybeans posted modest losses this week. November beans are down almost a dollar over the last week. While this week’s crop progress report saw another 2% of the soybean crop move to the poor to very poor category, rains across some of the Midwest has traders hopeful that crop deterioration will level off. There is still substantial risk of crop deteriorating further as 71% of the crop is setting pods. Later this week the USDA will release an updated supply and demand report for the U.S. Lower yields will likely lead to tighter supplies which could signal additional rationing in the soybean market. But, with tight stocks in South America the world will have to come to the U.S. for additional supplies, according to analysts with Arkansas Farm Bureau.

Dairy
Retail milk prices have started to move higher in recent weeks as the surplus built up earlier this year is subsiding. Whole milk prices averaged $3.65 per gallon in the first half of this year, up from $3.57 a year ago. The leaner 2% milk has averaged consumers $3.58 per gallon this year, compared to $3.51 in 2011. As grain costs continue to escalate, dairy farmers are seeing tigher operating margins, forcing some dairies to sell out.

Ethanol
Cash ethanol prices traded at a $2.54 per gallon last week, down from $2.95 per gallon a year ago, according to USDA. Ethanol was priced at a 90-cent per gallon discount to gasoline as of Aug. 3.