Tuesday, July 23, 2013

Welch on Grain: Corn Condition Drops, Per Seasonal Pattern

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Market Situation

Crop Progress

U.S. corn crop conditions fell slightly in Monday’s report, following normal seasonal patterns. The percent of this year’s crop rated as very poor and poor increased from 9% last week to 11%. The crop condition index stands at 366, down from 371 last week and is near the normal reading of 365. Typically, the crop condition index falls about 20 points from early June to mid-September before making a slight recovery at the end of the season.

Feed Use

Last Friday’s Cattle on Feed report showed cattle numbers in feedlots of 1,000 head capacity or more down 3% from a year ago. So far this year, cattle on feed numbers are down about 5% compared to last year. Broiler placements are running just above a year ago (+0.4%) and hog inventories are up 1.5%.

For the 2013/2014 marketing year, USDA projects grain consuming animal units (the species equivalent of a 1,000 pound dairy cow) to total 92.456 million. That is just above the 92.419 million of 2012/2013 (+0.04%). Cattle on Feed are forecast to be down 5.63%, hogs up 1.96%, and poultry up 2.37%. These numbers would put the cattle portion of grain consuming animal units at 36%, a new low for the cattle industry, hogs at 30%, a new high for the pork industry, and poultry at 34%. Energy feed per grain consuming animal unit, including distillers grains, is expected to rebound in 2013/14 with increased supplies of cheaper grain, up from 1.61 mt per gcau to 1.78. Compared to industry highs in 2007, both gcau’s and feed per gcau are down 3%.

Fuel Use

Ethanol consumption in 2013 is running above that of 2012 by about 1.7%. Ethanol production has been on the increase through most of 2013 and profit margins have returned to the industry.

Outside Markets

John Cassidy, a writer for The New Yorker, offered a synopsis of Fed Chairman Ben Bernanke’s testimony before Congress last week. Below are six key points from that testimony that Cassidy notes may not have “… cleared up the issue at hand but …improved the quality of our ignorance” (John Cassidy, The New Yorker, July 18, 2013, http://www.newyorker.com/online/blogs/johncassidy/2013/07/six-things-we-learned-from-bernankes-testimony.html). The bottom line, a turnaround in monetary policy is still a good way off.

1. The Fed is unlikely to begin “tapering” its policy of quantitative easing before December.
2. The big decisions will fall to Bernanke’s successor.
3. We still don’t know whether the U.S. economy is approaching “escape velocity”—the point at which it no longer needs extensive support from the Fed.
4. The federal-funds rate, and the short-term interest rates that are tied to it, won’t be going up anytime soon.
5. For now, the Fed remains Wall Street’s friend.
6. The Fed’s central policy dilemma remains unresolved.

Marketing Strategies

2013 Corn Marketing Plan. Weather concerns will provide the basis for my next round of corn sales. Condition ratings have slipped, but not beyond seasonal expectations. My marketing plan calls for sales of the last 20% of pre-harvest pricing in July to early August around the time of the August crop report. I will likely buy put options to establish a floor price but profit if prices do turn higher.

Upcoming Events

Registration is now open for the 26th Master Marketer program to be held beginning September 18th in El Campo, Texas. Brochures are available on request or you can register through Texas A&M AgriLife Extension Conference Services at https://agriliferegister.tamu.edu. Feel free to contact me for more information.

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