In the past couple of months the pork industry has realized the important role exports plays in our long term profitability. Exports are down both due to trade issues (ractopamine ‘free’ pork to Russia and China) and currency exchange rates (the devaluation of the Japanese yen). The decline in exports means more pork consumption per capita in the US as freezers can only hold so much inventory.
In spite of the pessimistic outlook the export news brings to the market, prices have been rising in line with seasonal expectations. For those that have to buy feed grains the biggest downside to chances for profitability this summer is the local grain basis.
On Friday USDA reported the Iowa country elevator basis averaged +$0.42 for corn and +$0.61 for soybeans. Some northwest Iowa elevators are bidding as much as +$1.35 basis for August corn deliveries. The spread between August and new crop corn bids at country elevators is at least $2/bu now.
As we all know, feed grain supplies will be tight this summer as a consequence of the drought last year. However, there are still grain producers with unpriced inventories. They didn’t price the grain when corn hit $8 or beans hit $15 because they didn’t want the income and associated income and self employment taxes. Now they are riding the market down, hoping for an opportunity to price the grain. The strong local basis may end up rewarding this strategy.
Corn planters began rolling in this region of Minnesota Friday afternoon. I live on the edge of North Mankato and you could hear the tractors rumbling all day yesterday. Has spring finally arrived in Minnesota?