Welch on Grain: Domestic, Global Corn Production Increases Offset by Increased Consumption

    Market Situation

    WASDE. Today’s World Agricultural Supply and Demand Estimates showed another increase in the average yield of the U.S. corn crop, up 1.9 bushels per acre to 171.8. This raised the size of the U.S. corn crop by 96 million bushels.

    However, most of that increase was offset by higher feed and food use in the last marketing year (as reflected in the September Grain Stocks) as beginning stocks were lowered 55 million bushels, and feed and food use are higher in the current marketing year, +35 million bushels.

    Overall, 2017/18 ending stocks increased 5 million bushels, the stocks to use ratio was virtually unchanged, and the average farm price estimates held steady.

    World corn production is up this month 6.2 mmt. The U.S. accounts for most of that increase in the major production areas reported in the WASDE, up 2.43 mmt, with most other producers little changed. In the accompanying World Agricultural Production report from the Foreign Agricultural Service, Nigerian corn production is up 3.60 mmt this month, a 52 percent increase.

    But these higher production numbers were offset by an increase in total use of 7.7 mmt which lowered ending stocks and the days of use on hand at the end of the marketing year from a 70-day supply last month to 69 days.

    Grains got a lift today from the supply and demand estimates for soybeans. Higher U.S. soybean use estimates in the previous marketing year lowered the carryover number for 2017/18 by 44 million bushels. With only minor new crop adjustments, this carried down to a lower ending stocks estimate by 45 million bushels compared to September.

    The same types of changes were seen in the global balance sheet: lower supply on a reduction in beginning stocks and slightly smaller production, a small increase in use, and tighter ending stocks. November 2017 soybean futures closed up 26¾ cents today.

    Crop Progress. The crop condition index for U.S. corn increased three points this week, very close to normal levels and consistent with seasonal patterns. The crop index this week is 365 and the average for early October is 363. The index usually bottoms out in early September and shows a slight increase as harvest expands.

    This week the percent of crop rated as poor declined by one point and corn rated excellent increased by 1 point. Maturity is running 5 points behind normal at 82 percent this week and harvest 15 points behind with 22 percent cut as of October 8.

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    Grain Use. The Short Term Energy Outlook for October from the Energy Information Administration showed U.S. gasoline consumption in September just below last year’s levels and 3 percent above average. Gasoline consumption aligned with the 2016/17 corn marketing year was unchanged compared to 2015/16. Ethanol consumption in September was on par with year ago levels while total consumption in the 2016/17 corn marketing year was up 1 percent compared to 2015/16.

    Outside Markets. The September jobs report showed the U.S. economy lost 33,000 jobs last month as the impacts of Hurricanes Harvey and Irma rippled through the economy. The jobs number is expected rebound in October. The unemployment rate dropped to 4.2 percent as the number of unemployed persons went down 331,000 and the size of the labor force increased by 575,000.

    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). We normally set the seasonal low before the big harvest push in October.

    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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