Welch on Grain: Corn Condition Continues to Decline

    Market Situation

    Crop Progress. The U.S. corn crop condition index slipped another six points this week from 378 to 372. Increases of 1% were registered in the very poor, poor, and fair categories; good was down 3%. The current index is right at the average corn crop index for this time of year.

    Grain Use. Feed use numbers continue to be supported by increases in livestock inventories and some indications the bird flu epidemic may be waning.

    Friday’s Hogs and Pigs report from USDA showed 66.9 million head on June 1, up 8.7% compared to last year and 3.5% above average. At the beginning of this corn marketing year, hog numbers were below both the average and year ago levels. Since then they are up 2.4% and 4.4%.

    USDA’s web update of avian influenza findings is unchanged this week with no new cases being reported since June 17th. In Iowa (the state with the most birds affected), the Department of Agriculture and Land Stewardship reports the latest case was 1 million birds in Wright County on June 16.

    Grain Stocks. The Grain Stocks report is an important barometer of grain use since the feed and residual use component of monthly USDA use estimates is not directly measured.

    Using the stock estimate from March 1, USDA’s revised ending stock estimate in the June WASDE, and a normal rate of grain disappearance in the March to June quarter, the June 1 corn stocks number should be about 4.6 billion bushels. A higher number than that reflects a lower than average rate of use; a number lower, a higher than average rate.

    Regardless, expect June 1 stocks well above last year and above the five-year average. The highest level of corn stocks on June 1 in the last 10 years was 4.363 billion bushels in 2006.

    Acreage. In the June WASDE, USDA projected U.S. corn planted acres at 89.2 million. Leaving the yield estimate unchanged at 166.8 bushels per acre and use at 13.760 billion, a one million swing in acreage changes projected corn ending stocks by about 150 million bushels.

    In my fundamental corn price model, there is a 20 cent per bushel price response to a one million acre planting change, all else being equal.

    Outside Markets. Revised estimates of 1st quarter GDP show the U.S. economy contracted less than first reported, from a previous -0.7% to -0.2%. Revisions were positive in all four GDP categories led by net exports. Exports minus imports were a -3.6% drag on the U.S. economy in the first estimate; that number is now -3.4%.

    The June employment report will be released on Thursday. Expectations are for job growth between 200,000 and 230, 000 with the unemployment rate to remain unchanged as more persons reenter the workforce.

    Global stock markets were off today as concerns increased over Greece’s ability to meet its debt obligations and remain in the Eurozone.

    Marketing Strategies

    2015 Corn Marketing Plan. Corn prices have rallied on weather concerns and short covering ahead of tomorrow’s Acreage and Grain Stocks reports. My marketing plan calls for pricing another 20% around the time of the June Acreage and Grain Stocks reports.

    With the current rally and the prospect of a sharp reversal, I have decided to price 10% ahead of the report at today’s prices and another 10% after the report, on a technical signal the price trend has changed. That puts me at 50% sold at an average futures price of $4.06 ahead of tomorrow’s reports, with 50% yet to go.

    Upcoming Reports/Events.
    June 30 – Acreage; Grain Stocks
    July 7 – Short-term Energy Outlook
    July 10 – WASDE
    July 24 – Cattle on Feed
    August 12 – WASDE (field survey-based production estimates)

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    Send press releases to Ernst@Agfax.com.

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