Welch on Grain: Corn Exports Remain Ahead of Pace, Sorghum Lagging

    Corn stocks at an elevator location during harvest. ©Debra L Ferguson Stock Images

    Market Situation

    USDA Agricultural Outlook Forum. USDA’s baseline model supply and demand projections for the 2017/18 crop marketing year show combined corn, soybean, and wheat acres at 224.0 million, down from 227.6 million last year and the lowest in 6 years.

    These projections are based on the assumption of normal weather and will be updated in the May World Agricultural Supply and Demand Estimates. That update will be the first official estimates of the 2017/18 crop year including information from the Planting Intentions report, survey-based wheat production estimates, and supply and demand forecasts for specific countries.

    The acreage relation between U.S. corn and soybeans looks more like it did in the early 2000s rather than the strong increase in corn relative to beans in the midst of the ethanol boom. Corn is projected at 90.0 million in 2017, down from 94.0 million last year while beans of 88.0 million (an all-time record high) are up from 83.4 million. All wheat acres are projected at 46.0 million for 2017, down 4.2 million from 2016.

    The combined total of 224.0 million corn, soybean, and wheat acres is 3.6 million acres less than 2016 and is the lowest since 230.7 million in 2014. All three of these crops saw record high yields in 2016. Given the model’s assumption of normal weather in 2017, production projections of all three crops are lower, even soybeans, where the increase in acres does not compensate for the yield adjustment.

    Corn Supply and Demand. The drop in corn acres reflects the price relationship between corn and soybeans that has been in place since last summer. The soybean price relative to corn has been above 2.5 which means soybeans show to be more profitable than corn for many Midwest farmers.

    USDA’s corn trendline yield of 170.7 bushels per acre is about 4 bushels less than last year. In the report, USDA notes that this is a weather adjusted trend. Using yields since 1960, a straight line yield projection for 2017 is 167 bushels per acre.

    USDA’s acreage and yield numbers combine for a 14.065 billion bushel corn crop in 2017, down over a billion bushels from 2016. But higher beginning stocks cut that loss in half, total supply is only down 505 million bushels. A yield of 167 bushels would lower production to 13.761 billion bushels, down 1.4 billion from last year and lower the total supply by 800 million bushels.

    USDA notes that while it cut corn use by 400 million bushels in the coming marketing year, it is still the second highest corn use total on record. The big change is in the export category where an increase in foreign production is expected to create more export competition. The export projection of 1.9 billion bushels is down from 2.225 billion currently, a drop of 325 million bushels.

    The other significant adjustment is to the feed and residual category. Grain consuming animal units are expected to increase again in 2017 but USDA lowered this number expecting the residual portion to decline with a lower level of production.

    Grain Commentary


    With the corn supply in 2017/18 down 500 million bushels and use down 400 million, ending stocks are lower but only by 100 million bushels. Projected ending stocks drop from 2.320 billion to 2.216 billion and the stocks to use ratio declines from 15.9% to 15.6%.

    That small of a change suggests an increase in the season average farm price of 10 cents, from $3.40 in the 2016/17 marketing year to $3.50 in 2017/18. That would drop the PLC payment in 2017 to 20 cents per bushel, down from a projected 30 cents in 2016.

    Grain Use. Exports sales reported this morning for the week of February 16th show corn well ahead of the pace needed to reach the marketing year target while grain sorghum is lagging behind.

    Corn export sales commitments for the marketing year stand at 1.682 billion bushels, 76% of the projected 2.225 billion for the marketing year. The current pace needed to reach that target is 20 million bushels per week.

    Grain sorghum sales of 137 million bushels are 61% of the marketing year target with a pace of 3 million per week need to reach 225 million for the year.

    This afternoon’s Cattle on Feed report showed total on feed February 1 10.782 million head, 101% of a year ago and 98% of the five year average. So far this corn marketing year, cattle on feed are running on par with year ago and 2.7% below average.

    Outside Markets. The University of Michigan Consumer Confidence index for February was released this morning showing an index value of 96.3, down from 98.5 in January. The 3-month moving average is still the highest since March of 2004.

    In the report, chief economist Richard Curtin notes the data suggest a growth rate of 2.7% in consumption for 2017. Generally, an index value above 90 suggest strong growth economic growth, 80-90 a softening economy, and below 80 weak economic conditions.

    The Conference Board released its index of leading economic indicators last week. The index is comprised of 10 economic components and is designed to predict the future direction of the overall economy. Dr. David Kohl notes that if this index is down 0.3% for three consecutive months and more than 1% for the 3-month period, the probability of recession rises dramatically.

    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. The pattern so far this year is consistent with the average seasonal index.

    2017 Feed Grain Marketing Plan. We are near the end of the window of RMA base price discovery. Currently, the 20-day average of the November soybean to December corn price ratio for 2017 is 2.58. 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.

    Today’s supply and demand projections for corn show a small decrease in ending stocks with 90 million acres planted and a yield of about 171 bushels. At the current use level, a small increase in yield above trend, about 172.5 bushels, and ending stocks would be constant. A yield of 171 bushels and 91 million acres does the same thing.

    That indicates that with only minor changes to production, ending stocks do not go down at all and the upward price pressure for 2017 would be off. A straight line trend yield estimate of 167 bushels means we need 93 million acres to keep stocks steady.

    I have priced the first 20% of the 2017 feed grain crop at 390¾. My next pricing window is around the upcoming Planting Intentions report, planting conditions, and weather outlook.

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