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CME: USDA to Release Corrected Crop Report

by 5m Editor
28 October 2008, at 12:00am

US - A press release issued late Monday indicates that USDA will release a 'corrected October Crop Production report' at 08:30 EDT today.

The World Ag Outlook Board will also issue an abbreviated World Ag Supply and Demand Estimates (WASDE) at the same time reflecting the changes in the Crop Production Report. Many are guessing at which number will be changed but, to our knowledge, any trade discussion is just that — a guess.

One point of clarification is offered regarding our numbers Friday on the Baltic Dry Index for containerized freight rates: The numbers were correct! It is almost incomprehensible that freight rates could have fallen by 91.5% since May but that is exactly what this index indicates.

Tight credit and shifting exchange rates are having large impacts on world trade and shipping lines are feeling the pain.

Pilgrims Pride, the nation’s largest chicken producer announced today that it had received another temporary covenant waiver with its lenders. We reported on Friday that the existing waiver expired Tuesday, October 28 and that something would need to be worked out to keep the company operating.

That has apparently happened, with the waiver extended until November 26. In addition to the covenant waiver, lenders also agreed to provide continued liquidity during the same period.

Pilgrim’s, like all livestock and poultry producers, has been rocked by soaring feed costs since the fall of 2006 in addition to domestic breast meat demand that has been anything but stellar for some time.

Add to those challenges some pressure on dark meat prices due to export difficulties and you have a critically serious situation for broiler producers. Sharply lower egg sets in recent weeks indicate that broiler production will fall in December and early 2009, very likely leading to higher chicken and chicken part prices.

In addition, falling corn and soybean meal prices will reduce costs. Pilgrim’s has apparently convinced its lenders that those actions will significantly impact its cash flow and profitability. Pilgrim’s estimates that current feed ingredient prices relative to those of late July will improve it’s profitability by $1.1 billion per year.

Corn and distillers dried grains with solubles (DDGS) markets are still establishing long-term relationships and patterns. DDGS is the by-product of corn-based ethanol production. Each bushel (56 pounds) of corn yields roughly 2.8 gallons of ethanol, 17 pounds of DDGS and 17 pounds of carbon dioxide.

The CO2 is either vented or, in some cases, captured for food or industrial usage. DDGS is high in crude protein but the protein is low-quality, meaning it has a low proportion of the amino acids (primarily lysine, tryptophan and methionine) which must be present in adequate amounts in pig and poultry diets. Ruminants, on the other hand, can effectively use the low-quality protein as well as the high levels of fiber in DDGS.

In short, DDGS is much better cattle feed than it is hog or chicken feed. The seasonal pattern of relative prices (at left) indicate that DDGS get cheap relative to corn in the summer and get higher in the fall when feedlot placements grow and supplemental cattle feeding begins.

DDGS $ PER LB / CORN $ PER LB

5m Editor