Feedgrain Market Outlook

Vol. 22 No. 27 - May 20, 2013 - PDF format

Market Situation

Crop Progress. Corn farmers last week tied a record set in 1992 for the highest percentage of crop planted in one week, 43%.  That jumped U.S. corn planting progress as of May 19^th from 28% to 71%.  Of the major corn producing states monitored by USDA, 3 had corn plantings of over 50% for the week: Illinois, 57%; Iowa, 56%; and Minnesota, 52%.

Feed Use  In the first official estimate of feed use in the 2013/2014 marketing year (May WASDE), USDA raised feed and residual use from 4.4 billion bushels in 2012/2013 to 5.325 billion bushels, a 925 million bushel increase.  This was by far the biggest increase in any corn use category.  We will continue to monitor inventories of grain consuming animals to see if increased numbers on feed support such an aggressive increase in use.

Since 2007, overall numbers are down (-3%) as is the amount of grain consumed per animal unit (-14%).   Feed use dropped sharply in the short crop years of 1983, 1988, and 1995 then rebounded quickly as corn supplies increased the following year.  In 2012, the decline in feed use does not appear to be a sudden drop but a continuation of a trend.  This might dampen the rebound in feed use even with a big corn crop in 2013.

Cattle on feed May 1 in lots of 1,000 head capacity or more totaled 10.735 million head, down 3.38% from a year ago and 1.85% below the 5-year average.  The average amount cattle numbers in 2013 have been below 2012 is 5.45%,

Broiler chicks placed for meat production are running only slightly ahead of last year’s pace, up 0.2% through the same week a year ago.  Compared to the 5-year average, placements are down about 4%.

Fuel Use  U.S. ethanol consumption is running slightly ahead of last year to this point in the year, up about half a percent.  Production since the beginning of the calendar year has been up and stocks on the decline as some degree of profitability has returned to the industry.

Exports  In the May WASDE, USDA lowered the 2012/2013 corn export projection from 800 million bushels to 750 million.  That lowered the sales pace needed to reach the target to 4.8 million bushels per week.  Export sales of old crop corn in last week’s export report (as of 5/9/13) were 8.7 million bushels and the average for the marketing year is 8.0 million bushels.

Outside Markets.  Federal Reserve Chairman Ben Bernanke testifies on Wednesday before the Joint Economic Committee about the country’s economic outlook.  Later that day comes the release of minutes of the Fed’s April 30 meeting.  The Chairman’s remarks will be scrutinized for clues as to when the Central Bank may begin to wind down its debt buying program known as Quantitative Easing.  This program is keeping interest rates low making riskier investments like stocks and commodities more attractive.  The Fed has previously announced that this policy will be maintained as long as unemployment is above 6.5% and inflation below 2.5%.

Last Thursday’s consumer price index numbers report inflation pressure is modest at best.  The one-month change in prices was a negative 0.4% and prices compared to April 2012 up only 1.1%.

Marketing Strategies

2013 Corn Marketing Plan.  I got the sell signal I was waiting for last Wednesday to price an additional 20% of the 2013 grain crop.  The close that day of 5.31¾ was below the 4-, 9-, and 18-day moving averages.  I used an option-based strategy that locks in a floor price but leaves a limited top side open.  One example is to cash forward contract, buy an at-the-money call and sell an out-of-the-money call.  In selling options I take on price risk and assume a marginable futures position. But in this case, if the futures price increases, profit accrued in the at-the-money call funds any margin required for the out-of-the money option position.

December 2013 Corn Futures:

Upcoming Events. 

Next Generation Agricultural Conference, sponsored by Capital Farm Credit and Texas A&M Agrilife Extension.  Two agricultural conferences for beginning farmers and ranchers will be held this year, the first at the Brazos Expo Center in Bryan, Texas, May 23-24. The second, held at the Taylor County Expo Center in Abilene, Texas, will be July 18-19 with more information to follow.  The conference in Bryan will begin Thursday, May 23 at 9:00 a.m.  More information is available at: https://www.capitalfarmcredit.com/news/next-generation-ag-conference.htm.

Mark Welch
Texas A&M AgriLife Extension Economist 
600 John Kimbrough Blvd
TAMU 2124 
College Station, Texas 77843  
Tel. (979)845-8011 
Fax. (979)845-4906 
JMWelch(at)tamu.edu 

^{The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas A&M AgriLife Extension Service.  Texas A&M AgriLife Extension Service assumes no liability for the use of this newsletter.  Educational programs of the Texas A&M AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin.  The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating}