Back to back USDA reports lit a fire under grain prices Friday. In its quarterly Stocks and Acreage report, the USDA chopped 5M acres off of 2020/21 corn, from 97M to 92M acres. In Friday’s WASDE, the USDA lowered its forecast of corn for ethanol by 50M bushels. But with supply declining more than use, 2020/21 ending stocks were cut from 3.38 to 2.60B bushels.

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In Thursday’s Supply Chain Chat, Eric Meyer of HighGround Dairy said that in the initial shock of restaurants and schools closing, farmers were forced to dump milk and cut back output by over 10% in April. But then retail demand kicked in. Americans started drinking more fluid milk, many eating cereal for breakfast at home. The government piled on, committing $1.2B to the dairy industry in April.

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In last week’s quarterly Hogs and Pigs report, the USDA said inventories were 79.6M head on June 1, up 5.2% from a year ago. Market ready hog numbers were up 5.8%, while hogs kept for breeding declined 1.3%. COVID issues are baked into all of these numbers. The sharp drop in foodservice demand in Mar-Apr-May, combined with processing plant closures, led to a back-up in slaughter ready cattle.

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In Friday’s Cattle on Feed report, the USDA said the June 1st feedlot inventory rose to 11.67M head, up from 11.20M a month earlier. It was the 2nd largest June 1st inventory since the USDA began keeping that statistic in 1996. But the increase was due to the fact that cattle marketed from feedlots in May were down 27.5% from last year.

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Most meat processing plants have recovered remarkably from COVID-19 shutdowns. Non-symptomatic workers are finishing quarantine and reporting back to work. New operating procedures seem to be working. Slaughter rates are getting back to pre-shutdown levels.

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Consumers continue to hit supermarkets hard for ground beef, helping send beef 90s lean trimmings prices soaring. 90s averaged a record high $3.10 per pound last week, up 48% from $2.09 a year ago. Beef supplies are lower in the face of increased demand. 90s imports from Australia are down 1% year-to-date, U.S. cow slaughter is about even with a year ago and beef production in May was down 22% vs 2019.

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After bottoming at $1.00 per pound in mid-April, block cheese prices have soared to $2.23 (5/29). In March, dairymen found themselves drowning in milk as schools and restaurants shutdown. In response, producers cut output. As a result of tighter milk supplies and substantial government assistance programs, cheese began recovering in late April.

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In Friday’s Cattle on Feed report, the USDA said the May 1st feedlot inventory fell to 11.2M head, 5.1% below last year. New placements onto feedlots in April were down 22.3% from a year ago. That follows a 22.7% drop in March. April cattle marketings to processing plants were down 24.3%, reflecting plant slowdowns and temporary closures.

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Rolling meat plant closures and re-openings look like they may be around for a while. Lack of processing capacity has backed-up live cattle, hogs, and chickens. Economically, euthanasia is the only choice for cash-strapped producers. In last week’s WASDE report, the USDA slashed 2020 beef production by 6.1% to 25.8B lbs – 5.1% below 2019 levels. 2020 pork output was cut from 29.05 to 27.45B pounds, slightly below 2019 levels.

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Beef prices just keep getting higher. In particular, beef 50s trimmings, which had dipped to $.24/lb a month ago, are now $2.86 - 253% above last year’s $.81 level. Top (inside) rounds at $6.43 are more than 3 times last year’s $2.02; brisket is $5.71 vs. $2.77. Beef output is running roughly 35% below a year ago and prices will remain high until production rebounds – and that might not be for months.

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In the April 24th Cattle on Feed report, the USDA said new placements onto feedlots in March were down 22.7% from a year ago, and that the April 1st feedlot inventory fell to 11.3M head, 5.5% below last year. A feedlot supply backup has led to the drop in new placements. Lack of processing capacity has left feedlots with no place to send finished cattle for slaughter. Since mid-March, cow slaughter is down roughly 25%.

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A week ago (4/20) the spot futures contract for a physical commodity (WTI crude oil) closed at minus $37.63 per barrel. How is that possible? As an oil futures contract expires, you either need to sell out of your position or take physical delivery of 1000 barrels or 42,000 gallons of crude oil in Cushing, OK. Given large world oil supplies and the sharp decline in consumption due to COVID-19, U.S. land-based oil storage facilities are full.

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Food supply chains are in chaos. For starters, no amount of retail demand can make up for the loss of foodservice. Produce is being plowed under, milk is getting dumped, bacon and chicken wing prices have plummeted. Secondly, foodservice specs and packaging are not easily adapted for retail sales. Finally, plant closures are threatening supply gaps.

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In Thursday’s WASDE report, the USDA made two COVID-19 related changes to its 2019/20 corn forecast. The USDA said that reduced demand for gasoline has hit ethanol makers hard. Projected corn usage for ethanol production was lowered by 6.9% to 5.05B bushels. Partly offsetting that decline is a big bump in corn demand to make alcoholic beverages.

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The USDA’s March 26 Quarterly Hogs and Pigs Report was very bearish for hog prices. The number of market hogs on March 1 were higher than expected at 71.25M head, 4.3% above a year ago. Hog futures plummeted 39% post-report, from $65.85/cwt (3/25) to $40.23 on Friday (4/3). However, looking forward, the breeding herd (6.38M head) was lower than expected, up just 0.4% from last year.

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We all want to know when life will be back to normal. Unfortunately, there are too many unknowns in trying to forecast the trajectory of COVID-19, the biggest problem being lack of widespread testing. Here’s what we do know. The lag from exposure to death is at least one month. If we currently have 2468 U.S. deaths, then given a 1.5% death rate, it means we had roughly 164,533 cases a month ago. With a 6-day doubling rate, we could have over 5M cases right now.

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In Friday’s Cattle on Feed report, the USDA said new placements onto feedlots in Feb were down 7.9% from a year ago, and that the March 1st feedlot inventory fell to 11.81M head, just 0.2% above last year. The drop in placements is likely the result of uncertainty surrounding COVID-19. Live cattle futures plummeted by 27.9%, from highs of $127.43/cwt in mid-Jan, to lows of $91.85 a week ago. But retail panic buying has help cattle futures recover a bit.

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Weeks of confusion and debate about COVID-19 finally gave way to reality over the past week, with a tidal wave of event, school and business closures. On Saturday, the House of Representatives passed legislation that would make virus testing free and provide paid sick leave to certain workers affected by the outbreak. On Sunday, the Federal Reserve fired its last bullet, slashing the federal funds rate effectively to zero.

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COVID-19 is threatening the U.S. economy. Last week, most economists cut their 2020 GDP forecasts: IHS Markit from 2.1% to 1.8%; Oxford Economics from 1.7% to 1.3%; Deutsche Bank from 2.2% to 1.6% and the Federal Reserve Bank of NY from 2.2% to 1.5% for the first half of 2020. The Federal Reserve cut interest rates by a half-point last week, its largest cut since its response to the Lehman Bros. collapse in 2008. On the flip side there was some good news.

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The coronavirus outbreak has sparked a huge sell-off in commodity prices. Raw materials sensitive to shifts in global growth have been the hardest hit with crude oil is at the top of the list. West Texas Intermediate (the U.S. benchmark) fell 16.15% last week to close at $44.76/barrel on Friday - the lowest price in over a year and the biggest weekly decline since Dec 2008.

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