Grain growers often care little about the profit situation of the livestock producers around them.
And livestock producers often don’t give a tinker’s dam about the situation of grain growers.
With the two big sides of the ag industry being generally inversely related in terms of profitability, that makes sense to a degree. Grain growers would live in a world of guilt if they felt too much for the cattle and hog guys that lose money when feedgrain prices rise, and livestock prods would feel pretty bad if they were too attuned to the profit picture in grain, when they need low grain prices in order to make money. So the two sides often live in comfortable solitudes.
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Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
But this winter and coming year is one in which the grain guys really need to care about the profitability of the hog industry, especially here on the prairies, because hog barns are going to be one of the main ways of getting rid of feedgrains this winter, and the more profitable the hog industry, the more likely hog producers will be to expand their herds, buy more feed wheat, and lend support to the market. As we all know, there’s gonna be a pile o’grain on the prairies this winter and we need to find someone to eat it.
A prairie feedgrains broker I was speaking with this morning said he can’t see feed wheat going into cattle feedlots much this winter, so grain growers can’t look for much hope there. But hog feeders love feed wheat, because the pigs love it, so their outlook is an important part of the demand picture right now.
How are they doing? Look at this chart of summer 2011 Chicago lean hogs futures prices:
Almost any producer can make a profit at these prices, even if corn prices have surged, so this is good news for grain growers who hope to see the beleaguered prairie hog industry expand its production over the winter.
Hopefully, from the perspective of a grain seller, the hog guys will expand soon, because a hog market analyst I just interviewed thinks hog futures prices are likely to start settling back. Not plunge, but drop back a bit.
Dennis Smith of Archer Financial Services – ADM’s U.S. brokerage service – told me he thinks the high’s in for hog futures for the medium term and next summer might not be as cheery as many hog producers are expecting.
He thinks the seasonal high has just been reached, and the weak reaction to the Friday USDA hogs and pigs report suggests prices don’t have further up to move. The market rallied into the report, then sold off after it came out Friday. It didn’t contain disastrous news, but wasn’t bullish and might be seen as slightly bearish. He thinks U.S. hog numbers might start exceeding year-before levels some time in the second quarter of 2011, and that will likely soften the summer market.
So he’s been making some lean hogs futures sales out to July 2011 recently in order to mitigate that risk.
This fall and winter are going to be a time when a lot of producers are trying to move a lot of feed-quality grains. Let’s hope the hog guys feel confident enough, after the worst times since 1998, to expand and soak some of it up.
