Welch on Grain: Corn Exports at 99% of MY Target

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Market Situation

Crop Progress.  The U.S. corn crop condition index slipped 2 points this week to 363. The changes reported today were a 1% increase in the poor category and a 1% decrease in corn rated good.  The average index for this week of the growing season is 368.

If normal ratings result in trend line yields, there is some question as to whether the U.S. crop will average 170.7 bushels per acre this year, the current USDA estimate, which is about 3 bushels above trend.

The list of major corn producing states with double digit ratings of  poor and very poor combined is up from five last week to 7 this week (% change from last week): Colorado, 16% (-2%); Indiana, 18% (+1%), Kansas, 10% (+2%); Nebraska 12% (+3%); North Dakota, 24% (+4%), South Dakota, 38% (+10%), and Wisconsin, 11% (+2%).

The drought impact on the corn crop in the Dakotas has increased in total area impacted as well as intensity.

Grain Use.  The all hog and pig inventory on June 1 of 71.650 million head was the highest for June since USDA began reporting this number in 1964.  For the 2016/17 corn marketing year, hog inventories have run about 4% above last year and almost 8% above average.

The July Grain Crushings report showed 465 million bushels used for fuel alcohol in May, up from 443 million bushels in April. At USDA’s current projected grain for fuel numbers, 471 million bushels will need to be consumed monthly for the rest of the marketing year.

The seasonal tendency is for ethanol production to fall off from June to September. Last year’s falling corn prices may have widened profit margins such that the production trend moved up to end the marketing year rather than decline.

U.S. corn exports for the week of July 6 were 6 million bushels, raising the total for the year to 2.195 billion, 99% of the current marketing year export target. Only 4 million bushels for each week remaining are needed to reach the projected total of 2.225 billion.

Outside Markets.  First quarter 2017 GDP was revised upwards from 1.2% to 1.4% last month by the U.S. Department of Commerce.  Personal consumption expenditures, exports, and government spending were all up offsetting a decline in business inventories.  The average rate of GDP growth since the end of the recession in 2009 has been about 2%.

Grain Commentary

Marketing Strategies

Seasonality. The seasonal price pattern for the December corn contract shows that prices tend to fall off after we know more about acres (June 30 Acreage report) and weather during the precipitation and temperature sensitive silking and tasseling stages (July).

2017 Feed Grain Marketing Plan. My corn price model suggests that with current corn area and use estimates, the current futures price supports a yield of about 166 bushels per acre, about 2 bushels below trend and 5 bushels below USDA.

Weather issues may yet trim the yield prospects of the 2017 crop (i.e. drought, flooding, heat). I have reached my marketing plan objective of 60% priced by the end of July.

I anticipate pricing another 20% around the time of the August crop report when yield prospects will be based on field observations.

Upcoming Reports/Events. 
July 21 – Cattle on Feed
August 10 – Crop Production and WASDE
September 18-20 – Master Marketer, Castroville, Texas

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