Commodities Report: So Far It’s Been a Lackluster Year
The last month has been relatively lackluster in the food commodity markets. This is due, in a large part, to the bigger than expected domestic corn and soybean harvests this fall. The USDA is currently estimating the corn harvest to be the second largest on record. Not to be outdone, the soybean harvest is projected at a record. This is despite periods of challenging weather throughout the growing season casting doubts on the crops. As we have discussed, this is a testament to the building efficiencies of farming, especially around seed varieties and data analytics. This is causing, quite simply, the weather to be less important with the crops. Don’t get us wrong here, the weather will remain important, but crops may continue to do better in adverse conditions than in prior years. And this is only expected to increase acreage abroad. Not a bullish story for grain prices for sure. Wheat supplies are in better balance, with some classes including hard red spring and durum the tightest in the last few years. But the U.S. is losing exports for both, which is likely to temper the upside in 2018. To add insult to injury for wheat, Canada recently raised its wheat crop estimates despite the widespread drought this summer. Again, this is a testament to the efficiency of farming. Protein buyers finally enjoyed lower chicken wing prices. The ARA Chicken Wing Index this fall declined to its least expensive level in over a year. Strong broiler slaughter gains compared have been a driver in the lower wing markets. But we remain concerned about chicken production this winter as output is only anticipated to be 1.6 percent better than the previous year. Longer term, the story for chicken prices looks good as producer margins are historically solid, the feed cost outlook is tame, and producers are actively trying to build new plants. Beef production expansion is anticipated in 2018 and it could be better than thought earlier this fall. Drought in the Southern Plains should push more cattle into feedlots in the coming months. Unfortunately, this may cause herd expansion to slow which may temper beef production growth in 2019.
David Maloni is commodity consultant for American Restaurant Association Inc., a food commodity research, forecasting, consulting, and contract risk management organization founded in 1996 specifically advising the US restaurant and hotel industry and supply chain.