Commodities Report: Rain Is Having a Negative Impact on Crops
The 2017-18 crop season is progressing, but under much more challenging conditions than during the early spring. Notable rainfall has slowed corn, soybean and spring wheat planting, which remains well behind historical norms. Further, flooding is forcing significant acreage to be replanted. The rain has not been helpful for the winter wheat crop either as of late. This factor, along with a late season snow storm, has caused the winter wheat crop conditions to deteriorate. The good news is that there is still plenty of time for the corn, soybeans and spring wheat crops to recover. Further, ample carry-over supplies both here and abroad make the margin of error with these crops sizeable. That said, supplies of corn, soybeans and wheat will likely be tighter, which could underpin prices. And if the crops experienced other challenges, it could be especially supportive of the markets. Despite all this, year-over-year gains in pork and beef production have remained impressive. But this hasn’t stopped the USDA choice boxed beef cutout, an index of choice beef cut prices, from climbing to an 18-month high this spring. Further, lighter cattle weights have helped propel beef 50 trim prices to record highs. This is all a testament to the strong beef demand, both domestic and export, during the spring. And we remain concerned around the potential upside price risk in the pork belly markets in the coming months as March stocks were a record low for the month. Chicken breast prices have also climbed to multi-month highs this spring, which is along seasonal patterns. Chicken producer margins have improved with the rise in prices, which could cause year-over-year gains in chicken output to intensify. Coming into May, weekly U.S. chicken production was tracking near just 1 percent above 2016. Cheese prices have been fairly range-bound in mid-spring. Buyers will be happy to know that historically large skim milk powder and nonfat dry milk stocks could temper the seasonal upside in cheese prices this summer.
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.