Welch on Grain: Corn Stocks Below Expectations, Still Well Above Average

    Corn harvest. Photo: Texas A&M AgriLife

    Market Situation

    Grain Stocks. The Grain Stocks report from USDA last week showed corn in all positions as of September 1 at 2.295 billion bushels, up 32 percent over last year and 76 percent above the most recent five-year average.

    This number was below the September WASDE number for 2016/17 ending stocks of 2.350 billion bushels and below the average trade guess going into the report of 2.353 billion.

    Crop Progress. The crop condition index for U.S. corn increased four points this week, very close to normal levels and consistent with seasonal patterns. The crop index this week is 362 and the average for early October is 361.

    The index usually bottoms out in early September and shows a slight increase as harvest expands. This week the percent of crop rated as very poor declined by one point, the fair category declined by one, and corn rated good increase by 2 points.

    Maturity is running behind normal, 68 percent this week compared to an average of 78 percent. Harvest is 9 points below average, 17 percent cut compared to 26 percent on average.

    Grain Use. Last week’s Hogs and Pigs report showed growth in hog inventories consistent with growth we have been tracking in cattle on feed and broiler chick placements. The September 1 inventory of all hogs and pigs was 73.549 million, up 2 percent compared to last year and 7 percent above the five-year average.

    In today’s release of the China Grain and Feed Update from USDA Foreign Agricultural Service, noted are changes to governmental policies affecting the grain sector. The government has announced a plan to blend 10 percent ethanol into the nation’s fuel supply.

    This would mean that about 4 billion gallons of ethanol would be needed to achieve the mandate consuming about 36 mmt or 1.4 billion bushels of corn. That is about 17 percent of current corn production in China.

    In addition, government researchers and academics are encouraging the government to suspend the minimum support price for wheat and rice. Given recent reform of the corn policy, the relatively high support prices wheat and rice are expected to cause corn production to shift towards these other crops, boosting already large stocks. The support price for wheat is 2,360 to 2,300 RMB per ton (about $9.50 per bushel) and rice 2,600 to 3,000 RMB (about $18/cwt.).

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    Outside Markets. The Institute of Supply Management reported today that the U.S. manufacturing sector expanded in September. The ISM index for September was 60.8, up 2 points from 58.8 in August and is the highest index reading since May of 2004. An index above 50 indicates expansion of the manufacturing sector.

    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 but the grain stocks report came in smaller than expected.

    At this point it looks like we set the seasonal low a few weeks earlier than normal this year.

    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.




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