Feed Outlook: Wet Weather Delays Planting, Lowers Production

Photo: Mississippi State University

As of June 9, only 82 percent of the 2019/20 corn crop was planted, and, as a result, both acreage and yield are reduced this month. The result is a 1,350-million-bushel reduction in the projected 2019/20 corn crop this month.

Planted acreage is lowered 3.0 million acres to 89.8 million, and yield is reduced 10 bushels per acre to 166.0 bushels. The resulting month-to-month volume change is the largest since 2012.

Both feed and residual and exports are lowered, and carryout declines by 810 million bushels to 1,675 million, the lowest since 2013. The projected average corn price received by farmers is raised $0.50 per bushel to $3.80.

Domestic Outlook

U.S. Feed Grain Use Lowered

U.S. feed grain disappearance for 2019/20 is projected at 376.4 million tons, 10.8 million below last month’s forecast and 4.0 million lower than the revised 2018/19 estimate of 380.4 million. Feed and residual use, projected at 135.6 1 million tons, is 4.3 million lower than the 2018/19 estimate of 139.9 million. Food, seed, and industrial (FSI) use, at 183.5 million tons, is unchanged from last month’s forecast. Exports are lowered 3.2 million tons this month to 57.2 million on lower projected corn shipments.

Grain Consuming Animal Units

Grain consuming animal units (GCAU) for 2019/20 are projected at 101.83 million units, 0.6 million below last month’s projection and 1.83 million above last year’s revision of 100.6 million. Feed and residual use per GCAU is projected at 1.39 tons, slightly below 2018/19.

Feed and Residual Use: Four Feed Grains and Wheat

Feed and residual use for the four feed grains (corn, sorghum, barley, and oats) and wheat, on a September-August marketing year basis for 2019/20, is projected at 139.0 million tons, 7.6 million lower than last month’s estimate of 146.6 million. The smaller projected corn crop caused a significant reduction in corn feed and residual, accounting for the change in total feed and residual.

Corn Supply Lowered Sharply Due to Weather’s Expected Impact on Plantings and Yield

Projected corn production was lowered 1,350 million bushels this month on a 3-million reduction in planted acres and a 10-bushel reduction in projected yield. If realized, the crop will be 13,680 million bushels, the lowest since 2015. This month-to-month change is the largest since 2012 in volume terms and the largest since the mid-1980s in percentage terms.

Planted acreage is now pegged at 89.8 million, and harvested acreage is projected at 82.4 million. Resulting supply is 15,925 million bushels. Carryin is projected up 100 million bushels to 2,195 million, and imports are raised 15 million to 50 million bushels.

Feed and Residual and Exports Projected Lower This Month

The drastic reduction in crop size is reflected in a 300-million-bushel decline in projected feed and residual for 2019/20, the result of higher prices for livestock and the impact of a smaller crop on the residual component, which tends to vary with crop size.

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Sharply reduced export prospects have impacted the 2018/19 and 2019/20 balance sheets this month. Projected exports for 2019/20 are lowered 125 million bushels to 2,150 million based on increased production in Argentina and Brazil and higher prices and reduced production in the United States. For 2018/19, projected exports are lowered 100 million bushels to 2,200 million based on year-to-date pace and reduced U.S. price competitiveness.

The 425-million-bushel decline in disappearance, combined with a 1,235-million-bushel decline in supply, results in an 810-million-bushel decline in ending stocks to 1,675 million, which if realized would be the lowest since 2013/14. Stocks-to-use declined from 16.5 to 11.8 this month.

2019/20 Corn Price Advances on Weather Worries

The projected average corn price received by farmers for 2019/20 is projected sharply higher at $3.80 per bushel. The $0.50 increase is driven by sharply lower stocks relative to use and relatively favorable forward pricing opportunities for producers.

Impact of Crop Progress and Uncertain Trade Prospects on Prices

Corn spot and futures prices rose sharply in May and early June as successive USDA crop progress reports showed U.S. national corn plantings at the slowest pace on record. While corn spot and futures prices normally reach seasonal highs in the spring and early summer on uncertainties about the crop size, the price increase in spring 2019 was far larger than in recent years.

The National Corn Index, a simple average of spot elevator bids collected by DTN and reported on the Minneapolis Grain Exchange, was more than $0.80 higher in early June than it was in early May. Spot prices have not been this high since June 2016. Near-month (July) futures were more than $0.90 above the May low, while December 2019 futures showed similar volatility. Both spot and futures prices hit multiyear highs in the first week of June before easing off slightly on a negative export sales report.

Sixty-seven percent of the expected corn acres were planted as of the first week of June, while normally nearly all the crop would be planted by now, so the high market prices reflect uncertainties about how whether some of the remaining acres will be planted late, planted to a different crop, or not planted at all. Crop progress improved to 83 percent planted the week ending June 9, still far behind the 5-year average of 99 percent.

Key corn States were below the national average: Indiana was 67 percent planted and Illinois was 73 percent planted, while Iowa and Minnesota were at 93 percent and 92 percent, respectively. Corn emergence is also far behind the 5-year average, at 62 percent as of June 9.

The high and volatile corn price reflects an unusual amount of uncertainty about several factors, including trade policies, the amount of corn that will be planted, and the market price at harvest time. There are also uncertainties about yield and about 2018 ending stocks. Soybean prices in May and June did not rise as much as corn prices, reflecting the divergence in the relative fundamentals of the two crops.

2018/19 Corn Price

For 2018/19, the season-average price for corn is raised $0.10 per bushel to $3.60, based on sales to date and sharply higher cash prices for summer delivery. The stocks-use-ratio is projected at 15.2, 0.7 higher than last month.

Alfalfa Hay Price at 5-Year High on Strong Demand

The USDA, National Agricultural Statistics Service (NASS) alfalfa hay price in April reached $199 per short ton, the highest level since August 2014, on strong domestic and export demand and concerns with winter crop injury. The export demand for U.S. alfalfa has driven up the price for domestic U.S. livestock consumers.

The wet weather in major alfalfa-producing States will almost certainly reduce yield, providing further support for prices. Alfalfa hay has been rising in price since early 2017, at the same time that other hay (hay excluding alfalfa) prices have been rising more slowly, reflecting both domestic and foreign demand for alfalfa as a high-quality feed.

U.S. exports of alfalfa hay (HTS code 1214900010) totaled 590,660 metric tons in the first quarter of 2019, down slightly from 596,471 for the first quarter of 2018. The biggest importers of alfalfa hay from the United States were Japan, China, the United Arab Emirates, and Saudi Arabia.

Exports of other hay were up slightly during the same period; the largest importers from the United States were Japan, South Korea, Taiwan, and the United Arab Emirates. The growth in export demand for alfalfa and other hay is primarily driven by growth in beef, mutton, and dairy sectors in relatively high-income countries without adequate cropland for forage crops.

Saudi Arabia recently lifted restrictions for planting wheat, which is expected to reduce alfalfa production mainly because of limited access to water for irrigation. Increased Saudi alfalfa and other feed and forage crops imports may reasonably be anticipated.

China has reduced alfalfa imports from the United States in the first quarter of 2019 by about half compared to the first quarter of 2018 and has increased imports from Spain and Australia. China has raised tariffs on alfalfa meal and pellets to an effective 30 percent as of June 1, 2019, and has also announced potential support programs for domestic alfalfa production.

Over the past year (January to March 2018 through January to March 2019), Japan has steadily raised imports of U.S. alfalfa hay and is now the largest importer of U.S. alfalfa hay.

Alfalfa hay is one of the eligible crops for the 2019 Market Facilitation Program to assist producers impacted by trade disruptions from foreign retaliatory tariffs on their products. Alfalfa is one of many agricultural commodities impacted by Chinese tariffs—as noted above, Chinese imports of alfalfa have noticeably declined in the past year. Producers of crops eligible for Market Facilitation Program (MFP) will receive a payment based on a county payment rate multiplied by the farm’s total plantings of any of the eligible crops.

The single payment rate per acre offers producers maximum planting flexibility and addresses cross-commodity price impacts of tariffs. Further details on payment rates and schedules will be released in the near future. The first set of payments will be made in late summer 2019, after USDA, Farm Service Agency crop reporting is completed by July 15. If unfavorable trade conditions continue, additional payments will be made in November 2019 and January 2020.

Little Action in Other Feed Grains

Feed grains other than corn saw no changes in supply, use, or ending stocks. There were minor changes in the price expectations for the 2019/20 season. Projected sorghum prices in 2019/20 are revised up by $0.50 from $3.00 per bushel to $3.50. Likewise, expected barley prices in 2019/20 are projected up by $0.45 per bushel, from $4.20 to $4.65 per bushel. The final projected price change to report is for oats in 2019/20, with a $0.30 increase per bushel, from $2.60 to $2.90 per bushel.

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