Russia threatens U.S. pork and poultry trade

Nation's Restaurant News, Oct 13, 2008 by John T. Barone

Butter markets at $1.66 a pound are a few cents below their recent high of $1.69. Butter inventories could be tight for the upcoming fall holidays, which will entice retailers and commercial bakeries to book product on any market dips. Butter prices are projected to average $1.44 per pound in 2008, up 7 percent from $1.34 per pound in 2007. Next year prices are forecast to stay elevated, with an average in the low $1.40s.

Grain--Despite flood damage, U.S. farmers will harvest 12.3 billion bushels of corn, the second-largest crop ever, below last year's record harvest of 13.1 billion bushels. Traders had been wary of an even larger USDA crop estimate and had bid futures down to $4.97 per bushel on August 11 from highs of $7.48 in early July. Weather conditions improved during July but were drier than normal in August. Early September futures prices were in the $5.40 range.

World corn production will be little changed from last year, with the smaller U.S. crop being offset by an increase in foreign output. Still, the USDA forecasts the world corn stocks-to-use ratio at 14.1 percent, the tightest since the early 1970s. That's because world demand is forecast to jump by better than 3 percent in 2008-09. As a result, corn remains fundamentally bullish.

World wheat production in 2008-09 is projected up 8 percent from 2007-08. Global ending stocks are expected to rebuild, up 18 percent compared to a year earlier. Domestically, an abundance of soft red wheat is in contrast to tight supplies of hard wheat. Chicago wheat futures, which were $8.97 per bushel as recently as August 21, were in the $7.30 range in early September.

Oil--Soybean oil prices appear to be more responsive to changes in crude oil prices than they are to changes in soybean fundamentals. As crude futures have dropped from $1.45 to $1.06, a 27 percent decline, soy oil futures have saw a similar decline from 64 cents to 48 cents, or about 25 percent. In addition, a rebounding U.S. dollar is slowing exports and increasing domestic supplies. Hedge funds are now reported to be net "short" on soybean oil futures. But supply fundamentals are somewhat bullish, which should keep a floor under the market in the high-40-cent range.

John T. Barone is president of Market Vision Inc. in Fairfield, N.J., and can be reached at jbarone@mktvsn.com.