A new year, different crop-weather
As a new year gets underway, we'll take a look at 2014 and the general expectations for markets in the year ahead. We'll cover the row crops as well as livestock. We'll provide a general overview from a high altitude based primarily on fundamentals.
First, we'll start with the livestock sector. Limited supplies of feeder cattle and live cattle should help to keep live cattle as well as feeder cattle prices higher in 2014. There will likely be corrections along the way, yet the general tone will be supportive as the cattle industry will likely experience a period of profitability and expansion. Heifers will likely be retained and grow the herd, as producers feel more and more confident that grain prices will stay at a lower level and availability of feed will be the best in the last four years. Big supplies of corn and soybeans in 2013, as well as an adequate level of wheat inventory, should insure lower feed costs. Of course, there's always weather which could impact crop production, and this will need to again be monitored in 2014. Yet for now, we anticipate that U.S. grain producers will produce big crops on the assumption of normal weather until proven otherwise.
The hog industry will likely see favorable margins for producers due to lower feed costs as well as moderately tight inventory. However, we expect hog production to increase one to two percent as producers respond to positive margins. Hog futures for the 2014 contracts have been in a strong uptrend for months. When producers in late fall of 2013 and early winter for 2014 view summer months as positive margin months, we expect herd expansion. Disease issues will also play a role in 2014. It doesn't appear that anyone has a strong handle on the impact of PED viral issues, and this, too, will help provide some underlying support for prices. However, assuming viral issues are kept in check, supplies will likely increase. Exports will be strong as well, and the overwhelming expectation for increased supply will likely mean prices could be in a downtrend by the third and fourth quarters.
Corn, beans and wheat will all experience challenges if you are expecting higher prices. A rise in world production and inventories will keep prices in check. The drought of 2012 had significant impact for the availability of grain supplies and, since prices moved so much higher, curbed demand. High prices also encouraged bigger world production efforts, and 2013 saw record production levels in the southern and northern hemispheres. This implied lower prices and eventually, when the crop came to fruition, that is exactly what occurred. Looking ahead into 2014, it's likely that corn prices will struggle to reach $5.00 unless weather has an impact. On the downside, a good crop suggests prices under $4.00 (and maybe closer to $3.00) if the crop looks good by next fall. Carryout, currently near 1.8 billion, could grow to over 2.3 billion with yield of more than 160 bushels per acre.
Soybeans will be the most interesting market in the year ahead, as a tight projected carryout (150 million bushels) suggests the need for a huge South American crop, as well as a good U.S. crop in 2014. At this point, it appears that South America will produce record beans, and acreage in the U.S. will be up, pulling some acres from corn. In turn, if weather cooperates, carryout for beans could eventually move toward 300 million bushels. Any weather disruptions, however, suggest that rationing may need to occur.