Welch on Grain: China Dominates U.S. Sorghum Exports; U.S.

©Debra L Ferguson Stock Photography

Crop Condition. Corn crop conditions globally, reported by the Group on Earth Observations’ Global Agricultural Monitoring, GEOGLAM, show few areas of concern. Rainfall deficits have been reported in southern India and some of the center and southern corn production regions in Argentina. The crop in Brazil, a major export competitor, is rated as favorable.

The December Cattle of Feed Report and the Quarterly Hogs and Pigs numbers come out next Friday, December 23rd. Broiler chick placements are 2% above year ago levels and 4% above average. In the December WASDE, USDA projected 2016 red meat and poultry production up 3% over 2015.

Corn export sales in the 2016/17 marketing year are currently at 59% of USDA’s marketing year target of 2.225 billion bushels. Normally by the end of December, 55% of the yearly sales are on the books. Grain sorghum sales have been more variable this year with China still the dominant buyer week to week. Sales have been strong 6 out of the last 7 weeks after a slow start to the marketing year.

And there are other ways to export a bushel of grain. U.S. exports of dried distillers grains account for about 25% of annual production. So far this corn marketing year, these exports are at normal levels. U.S. ethanol exports so far this year are up 70 percent compared to last year. Exports of 800 to 900 million gallons per year would be 5 to 6% of the 15 billion gallon per year target for conventional biofuels under the renewable fuel standard.

Outside Markets. As expected, the Federal Open Market Committee of the Federal Reserve raised the target range for the federal funds rate to 1⁄2 to 3⁄4 percent at its meeting last week, the first increase since last December. It also released economic projections by committee participants and interest rate expectations over the next several years.

Growth in GDP, the unemployment rate, and inflation are all expected to be mostly steady through 2019 at just under 2%, 5%, and 2%. In 2017, the consensus of committee opinion is for the federal funds interest rate to be up around 1.4%, about 3/4 of a point higher than where we are today, still an historically low level.

Marketing Strategies

Seasonality. Though every crop year is different, the seasonal index for the December corn futures contract indicates that favorable pricing opportunities are more likely in the first half of the crop year.

2017 Feed Grain Marketing Plan. I have done no pre-harvest pricing of the 2017 crop. I look for growing conditions in South America and early estimates of next year’s acreage to shape the early season price prospects for next year’s crop. Conditions in Brazil at this time are generally favorable putting downward pressure on prices but the soybean to corn price ratio suggests a significant shift in acres in the U.S. next year.

The 20-day average of the November soybean to December corn price ratio for 2017 is 2.6. That is a level that favors soybean returns over corn returns in many mid-west crop budgets. Last year the price ratio of the RMA base prices was 2.29; the ratio during the survey period for the Planting Intentions report was 2.35.

The December Cattle of Feed Report and the Quarterly Hogs and Pigs numbers come out next Friday, December 23rd. Broiler chick placements are 2% above year ago levels and 4% above average. In the December WASDE, USDA projected 2016 red meat and poultry production up 3% over 2015.

Corn export sales in the 2016/17 marketing year are currently at 59% of USDA’s marketing year target of 2.225 billion bushels. Normally by the end of December, 55% of the yearly sales are on the books. Grain sorghum sales have been more variable this year with China still the dominant buyer week to week. Sales have been strong 6 out of the last 7 weeks after a slow start to the marketing year.

Outside Markets. As expected, the Federal Open Market Committee of the Federal Reserve raised the target range for the federal funds rate to 1⁄2 to 3⁄4 percent at its meeting last week, the first increase since last December. It also released economic projections by committee participants and interest rate expectations over the next several years.


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