Soybean futures, which had dropped to 12-year lows of $7.91 per bushel in 2019, soared to a 2-year high of $10.43 on Friday. It was trade wars with China that led to last year’s plunge, and it’s Chinese buying that’s driving this year’s rally. There is debate over whether China actually needs the product, or if this is just election year politics.

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In Friday’s WASDE report, the USDA downgraded its corn output numbers due to drought in several growing areas and the “derecho” storm that hit Iowa with 100-mph winds. The USDA cut 2020/21 corn yield from 181.8 to 178.5 bushels per acre and dropped its forecast for corn production from 15.3B to 14.9B bushels. If realized, it would still be the 2nd largest corn crop on record.

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It’s been a wild ride for hog prices this year. Covid started to impact processing plants in March. Shut-downs led to animal inventory back-ups. CME futures prices that averaged $62.90/cwt in Q1, plunged to lows of $37.33 by mid-April. Producers tried putting hogs on a diet to slow weight gains - to no avail. March through Aug hog futures averaged $53.59, down 30.9% from a year earlier.

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Broiler flock numbers are struggling to recover. Chicks placed for grow-out, which were -7.6% in April and -5.6% in May, are still running negative vs. a year ago – down 2.5% for the first 3 weeks of Aug. Lower bird numbers are being partially offset by heavier weights. The USDA projects broiler output to be up 1.7% in 2020, as a big Q1 will be dragged down by declines (year-over-year) in Q2, Q3 and Q4.

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In Friday’s Cattle on Feed report, the USDA said feedlot inventories on Aug 1st were 11.3M head, up 1.6% from a year ago. New placements onto feedlots in July were larger than expected at 11.0% above 2019. The jump in placements shows that beef is flowing through the system again and that feedlots are catching up on the April-May backlog in feeder cattle that resulted from processing plant closures.

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In last week’s WASDE, the USDA raised its forecast for 2020/21 corn output and said yield will hit a record-high 181.8 bushels per acre. On the demand side, 2019/20 corn exports will hit a 7-year low, down 15% from a year ago. A big crop and slack demand prompted the USDA to slash it’s 2020/21 corn price forecast from $3.35 to a 14-year low of $3.10 per bushel.

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While restaurant industry execs and business owners have mostly railed against the federal government’s extra $600/week in unemployment benefits, we have to consider what might happen to restaurant sales now that it’s gone. Last week the Labor Dept. said U.S. employers added 1.8M jobs in July, following a combined gain of 7.5M in May and June. The unemployment rate dropped from 14.7% in April to 10.2% in July. These are really great numbers.

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Meat supplies are back. The USDA estimated that combined red meat and poultry output was 9.05B pounds in June, 8% higher than a year ago. Pork output led the way, up 13% in June, as processors tried to catch up with the backlog of hogs from April and May. Broiler eggs-set and chicks-placed are still running 1% behind last year, but the hatching flock has recovered to 3% above a year ago.

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On Friday, the USDA released two key cattle reports that were mostly bearish for cattle/beef prices. In its mid-year cattle inventory report, the USDA said there were 103.0M cattle and calves in the U.S. on July 1, up slightly from 102.9M a year earlier. Milk cow numbers were marginally higher, beef cows a bit lower.

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From Thursday’s “Supply Chain Chat”: The U.S. is entering what may be a prolonged recession. The unemployment rate jumped from 3.5% in February to 11.1% in June. The consensus forecast of economists surveyed by The Wall Street Journal is for GDP growth to contract by 5.9% in 2020. That’s 7 times the downturn we experienced during the financial crisis in 2008 (-0.8%).

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Back to back USDA reports lit a fire under grain prices Friday. In its quarterly Stocks and Acreage report, the USDA chopped 5M acres off of 2020/21 corn, from 97M to 92M acres. In Friday’s WASDE, the USDA lowered its forecast of corn for ethanol by 50M bushels. But with supply declining more than use, 2020/21 ending stocks were cut from 3.38 to 2.60B bushels.

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In Thursday’s Supply Chain Chat, Eric Meyer of HighGround Dairy said that in the initial shock of restaurants and schools closing, farmers were forced to dump milk and cut back output by over 10% in April. But then retail demand kicked in. Americans started drinking more fluid milk, many eating cereal for breakfast at home. The government piled on, committing $1.2B to the dairy industry in April.

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In last week’s quarterly Hogs and Pigs report, the USDA said inventories were 79.6M head on June 1, up 5.2% from a year ago. Market ready hog numbers were up 5.8%, while hogs kept for breeding declined 1.3%. COVID issues are baked into all of these numbers. The sharp drop in foodservice demand in Mar-Apr-May, combined with processing plant closures, led to a back-up in slaughter ready cattle.

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In Friday’s Cattle on Feed report, the USDA said the June 1st feedlot inventory rose to 11.67M head, up from 11.20M a month earlier. It was the 2nd largest June 1st inventory since the USDA began keeping that statistic in 1996. But the increase was due to the fact that cattle marketed from feedlots in May were down 27.5% from last year.

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Most meat processing plants have recovered remarkably from COVID-19 shutdowns. Non-symptomatic workers are finishing quarantine and reporting back to work. New operating procedures seem to be working. Slaughter rates are getting back to pre-shutdown levels.

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Consumers continue to hit supermarkets hard for ground beef, helping send beef 90s lean trimmings prices soaring. 90s averaged a record high $3.10 per pound last week, up 48% from $2.09 a year ago. Beef supplies are lower in the face of increased demand. 90s imports from Australia are down 1% year-to-date, U.S. cow slaughter is about even with a year ago and beef production in May was down 22% vs 2019.

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After bottoming at $1.00 per pound in mid-April, block cheese prices have soared to $2.23 (5/29). In March, dairymen found themselves drowning in milk as schools and restaurants shutdown. In response, producers cut output. As a result of tighter milk supplies and substantial government assistance programs, cheese began recovering in late April.

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In Friday’s Cattle on Feed report, the USDA said the May 1st feedlot inventory fell to 11.2M head, 5.1% below last year. New placements onto feedlots in April were down 22.3% from a year ago. That follows a 22.7% drop in March. April cattle marketings to processing plants were down 24.3%, reflecting plant slowdowns and temporary closures.

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Rolling meat plant closures and re-openings look like they may be around for a while. Lack of processing capacity has backed-up live cattle, hogs, and chickens. Economically, euthanasia is the only choice for cash-strapped producers. In last week’s WASDE report, the USDA slashed 2020 beef production by 6.1% to 25.8B lbs – 5.1% below 2019 levels. 2020 pork output was cut from 29.05 to 27.45B pounds, slightly below 2019 levels.

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Beef prices just keep getting higher. In particular, beef 50s trimmings, which had dipped to $.24/lb a month ago, are now $2.86 - 253% above last year’s $.81 level. Top (inside) rounds at $6.43 are more than 3 times last year’s $2.02; brisket is $5.71 vs. $2.77. Beef output is running roughly 35% below a year ago and prices will remain high until production rebounds – and that might not be for months.

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