Welch on Grain: USDA Raises Corn Yield, Ending Stocks

    Market Situation

    WASDE. The surprising feature in the U.S. corn numbers in today’s World Agricultural Supply and Demand Estimates was an increase to the average yield. USDA lowered the yield number in August from 170.7 bushels per acre to 169.5 then today raised it to 169.9. This raised the production estimate for 2017 by 31 million bushels, which was mostly offset by a 20 million bushel decrease in beginning stocks.

    Corn use numbers for the 2017/18 marketing year were reduced 50 million bushels with feed use up 25 million and food, seed, and industrial down 75 million. Ending stocks increased by 62 million bushels and the stocks to use ratio went from 15.9% in August to 16.4%. The season average farm price estimate declined 10 cents to $3.20 per bushel.

    Today’s yield estimate is not the final word on the 2017 corn crop. Since 2000, the U.S. average corn yield estimate has increased 9 times from September to October and decreased 6 times. The average change is a 0.9 bushel increase.

    World corn supplies were lower this month by 2.5 mmt on a lower level of beginning stocks and slightly lower production. Small production increases in the U.S., Argentina, and Mexico were offset by production cuts in Europe and the FSU-12.

    World corn use was down 4.1 mmt which caused ending stocks to increase 1.6 mmt. Estimated days of use on hand at the end of the marketing year increased from 69.1 in August to 69.9, down from a 77.6 day supply last year.

    Crop Progress. The crop condition index for U.S. corn was unchanged this week at 357. There were no changes in any of the rating categories. The average crop index for this week of the growing season is 356.

    The list of major corn producing states with double digit ratings of poor and very poor decreased from 11 to 10 this week (% change from last week): Colorado, 14% (+1%), Illinois, 12% (-2%), Indiana, 17% (-2%); Iowa, 13% (+1%), Kansas, 18% (+2%), Michigan, 19% (+5%), Nebraska, 12% (-1%); North Dakota, 20% (+0%), South Dakota, 26% (+0%), and Wisconsin, 10% (+0%).

    Outside Markets. U.S. stock market indices hit record high levels the last several days in what is described as a “relief rally”. Destruction totals from Hurricane Irma, though massive, will likely come in below forecasts and North Korea celebrated a national holiday without launching additional missile tests.

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    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).

    With dry conditions impacting major corn growing areas, yield concerns have propped up prices more so than we would see in a normal year, compounded by significantly fewer corn acres this year. The corn production estimate came in slightly higher than expected in the September WASDE which may test whether we have seen the seasonal low a few weeks early.

    2017 Feed Grain Marketing Plan. I am 80% sold on the 2017 corn crop and will price the remaining 20% at harvest. I am turning my attention to the December 2018 contract and am prepared to make sales against next year’s crop if we get a significant late season rally.

    Upcoming Reports/Events.
    September 22 – Cattle on Feed
    September 29 – Grain Stocks, Small Grains Summary
    October 12 – Crop Production and WASDE

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