Tuesday, June 24, 2014
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Welch on Grain: Corn Condition Declines but Still Above Average

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Market Situation

Crop Progress. Ahead of this Monday’s Crop Progress report there was some concern that this year’s crop would begin to show damage from excess rainfall in key corn growing areas. Those concerns were largely unsubstantiated in yesterday’s ratings. The crop condition index did decline 2 points to 386 on a 1% increase in the poor, fair, and excellent categories and a 3% decline in the good, but still stands well above the average for this time of year of 371.

In the top 5 producing corn states, the average of corn rated good and excellent is 76% this week, up from 75% last week. Illinois, Indiana, and Nebraska were all up 2% while Iowa was down 4% and Minnesota down 9%.

Corn Use. In numbers related to feed use, last Friday’s Cattle on Feed report showed 10.594 million head on feed as of June 1, 98% of last year’s 10.724 million head and 99% of the five-year average of 10.724 million. The on feed inventory for the corn marketing year is 4% below last year and about 5% below average.

Broiler chick placements for the corn marketing year are running about 1% above year ago levels and 1% below the five-year average.

USDA’s revised estimate of grain consuming animal units shows the cattle portion at a record low percentage of the nation’s meat animal industries, 36%; poultry are at a record high 35%, pork is 29% of all grain consuming animal units, just below its record high of 30%. Total GCAUs for 2014/15 are up 0.5% from 13/14 at 90.147 million, mostly on increases in poultry numbers.

With lower grain prices, energy feed per grain consuming animal unit has rebounded. For the 2014/15 marketing year it is estimated that each GCAU will consume 1.84 metric tons of energy feed up from 1.83 last year. This is back up to the average level of energy feed consumption from 1975 to 2005, prior to the ethanol boom, of 1.82 mt/GCAU.

Outside Markets. From IHS Global here are the week’s key U.S. data releases and events:

The Fed left interest rates unchanged and tapered its bond buying at is latest meeting. Interestingly, although inflation has picked up recently, the Fed does not expect to achieve its 2% target until late next year. This suggests that the Fed is still likely to wait until the second half of next year to raise interest rates, although some individual members are beginning to advocate for moving this date forward. The most likely reason for the slow approach: while consumer price inflation is firming, wage inflation remains limp.

The Consumer Price Index rose 0.4% in May, the largest gain in five quarters, driven by a 0.7% gain in grocery prices and a 0.9% gain in energy prices. Core CPI inflation was 0.3%, a fairly strong reading. This measure of core inflation is now up to 2.0% year on year. While this does not put us in the danger zone of truly elevated inflation, it is no picnic for consumers since wages are barely keeping up.

Builders scaled back on housing starts in May. Total starts slid 6.5%, to 1.001 million. On a positive note, single-family building permits advanced 3.7%. Our analysis emphasizes the gain in permits because the change in housing starts fails the test for statistical significance. However, this broad-based gain in permits is only one data point after a string of disappointments, so it is too soon to tell if we are looking at a spring turnaround for housing construction.

Industrial production added 0.6% in May, on gains in mining and manufacturing output. Revisions left the spring looking quite good for manufacturing as it advanced in three out of the last four months, with a token reversal in April that looks mostly like noise. However, unless GDP growth posts a sharp acceleration in the second half of the year, it could be difficult for the manufacturing sector to sustain this improvement.

First-quarter GDP growth should be revised down to -2.0% from -1.0% in Wednesday’s third estimate. The downward revision will come from a combination of lower consumer spending on healthcare services than previously assumed, and a wider trade deficit. But the second quarter is shaping up to be much stronger. In particular, consumer spending likely advanced 0.2% in May after a lackluster April. Core PCE price inflation is expected at 0.2% for May, pulling year-on-year core inflation up to 1.5%, from 1.4%. Housing-sector data should prove mildly optimistic. We anticipate that existing home sales increased 2.2% in May, to 4.75 million units, and that new home sales advanced 0.9%, to 437,000 units (annual rates). April’s housing inventory expansion likely provided a boost to sales. Home price appreciation, meanwhile, is moderating, and year-on-year gains in the S&P/Case-Shiller index likely fell to 11.8% in April, from 12.4% March. Finally, rising gasoline and food prices likely weighed on consumer optimism this month, with the final Reuters/University of Michigan’s sentiment index slipping to 81.1, from the preliminary 81.2.

Marketing Strategies

2014 Corn Marketing Plan. I am 40% priced on 2014 feed grain production. My next sales objective is this month around the time of the Acreage and Grain Stocks reports. The December contract tried to move higher late last week on weather concerns but Monday’s key reversal quickly undid all that we had briefly gained. However, at least to this point, support around $4.37 has held.

Upcoming Reports/Events.

June 27 – Quarterly Hogs and Pigs report
June 30 – Crop Progress, Acreage, Grain Stocks
July 7 – Crop Progress
July 11 – WASDE

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