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Agrimarketing : January February 2008
22 AgriMarketing January/February 2008 tion of crops that offer better profit potential? Last year 's planted acreage total was the lowest in 18 years and the allure of historically high soybean, corn and wheat prices is expected to slash at least another million acres from cotton's production base. If the plantings total drops to 9.5 million acres or less (compared to 13.5 million just three years ear- lier), it will dra- matically reduce available sup- plies --- even if yields are record high as they were last year. How hard is the cotton market working at preventing an extremely tight supply situation from develop- ing? Most cotton growers who have other cropping options say, "Not hard enough." New-crop cotton prices need to climb into the 80 cent range before the profit potential starts to compare to $11 soybeans. The trend for cotton futures has been up since early December, but the market is just now becoming fully engaged in the battle for 2008 acreage. The corn and soybean markets have been battling for acres for months, so the cotton market has some catching up to do. The U.S. cotton market continues to become more and more heavily dependent upon the export market. More than 75% of U.S. cotton is nor- mally exported, but so far this mar- keting year export business hasn't been anything special. That's largely because China and India, the two dominant cotton users in the world, each had excellent crops this year. In fact, China has enjoyed two consecutive great cotton crops 35.5 million bales. But even with record-shattering production, China will need to import another 14.5 million bales to keep its massive textile industry humming along. With China using nearly 43% of the world's cotton, a recession in that booming economy would undercut prices in the U.S. and elsewhere. The spotlight in cotton futures will shift almost entirely to the new crop into spring. Even though demand is not robust, the market needs to limit the drop in production. CATTLE OUTLOOK by Rich Nelson, Allendale, McHenry, IL firstname.lastname@example.org Supplies posted a relatively moderate increase over the past year and should see a similar 2% increase in 2008. For available feedlot supplies the 2007 calf crop was down slightly from 2006 lev- els. We can also note a few 2007 born heifers may be held back to restart expansion in 2008. Moisture levels look good and calf prices are still high by historical standards. The shortfall in U.S. numbers may be made up by Canadian imports. Total live cattle imports maybeupagood12%in2008.We look for a bulge in slaughters in the second and third quarters then a decline in the fourth quarter. Exports made a good improve- ment in 2007 with the reopening of trade to South Korea and a bump in trade to Japan. There is still a lot of ground to make up in the coming years to get back to 2003 levels. U.S. negotiators are currently in talks with both South Korea and Japan to sharply open up trade. At the earliest we would expect some progress on these fronts to show up around April. For our price outlooks we are only using a moderate 10% increase in exports for 2008. A solid agree- ment, implemented quickly, could change those numbers. Historically beef has been offered as the premium product among the top proteins. Perhaps the biggest question market in the 2008 outlook will be demand. Consumer beef demand fell 4% and 6% respectively in 2005 and 2006. By the books, 2007 should have been set up to be a tough year. Energy prices were sharply higher. Con- sumers heard about sub-prime loans. Recently inflation, unemployment, and job growth have been getting air- play. Also, we had a big jump in com- peting meats. With all of this to con- sider our models show retail beef demand actually increased 1%. This suggests beef demand may be able to hold against bad news that will con- tinue to plague much of 2008. Live cattle prices averaged $93 in 2007. We expect a $94 average for 2008. By quarter we project $94, $94, $88, and $99. PORK OUTLOOK by Rich Nelson, Allendale This past year the pork industry has been hit by several supply factors which will carry over into 2008. Expansion by U.S. producers, increasing imports of Canadian pigs, and new gains from the circovirus vaccine pushed production to record levels in 2007 and will carry over into even larger numbers for 2008. Recent losses to U.S. producers have not been enough to stop expan- sion, currently in the fifth year in a row. Live hog imports from Canada were 13% higher in 2007 and will increase again in 2008. Canadian packing contraction, high feed costs, and a poor exchange rate are con- tributing factors. The last supply issue has been the circovirus vaccine. Trials suggest death loss in problem wean to finish barns at 9% were brought down to 3% with the vaccine. During the fourth quarter we project nation- wide production was boosted 2% to 3% by this factor alone. With these factors in mind we project total slaughter for 2008 to run 3% higher and pork production to run 4% higher than 2007. While the supply increases have garnered headlines in recent months the demand end has been impressive. Export sales to Japan and China have offset slower trade in other areas. Domestic consumption has also been important. Retailers did not have to discount prices as much as they should have to move the mountain of product recently. Our models suggest 2007 posted a 2% jump in consumer demand after declines in both 2005 and 2006. Grocers are being turned off by high wholesale poultry prices and have more interest in value priced pork now. 2007 pork production increased 5% and base live prices averaged $47/cwt. Breakevens averaged $48/cwt. For 2008 we project a 4% production increase and the same $47/cwt. base live price. THE AG ECONOMY/continued from page 21 Nelson Harper
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