CME: Livestock, Grain Markets Still Reeling from USDA Reports03 April 2013
US - The impacts of Thursday’s USDA reports were still being felt in livestock and grain markets as the trade grappled with many new prospects for the coming crop year, write Steve Meyer and Len Steiner.
As with all information, some impacts were good and some were bad, largely depending on one’s point of view. A friend at church on Sunday lamented that corn prices had fallen sharply and I (Steve) told him it was one of the best things to happen to my business and clients in awhile. He understood but definitely did not appreciate my “contrarian” view. Perspective is indeed important.
With the perspective gained through a couple of days of market observation, let’s consider some more last Thursday’s reports — and especially those dealing with crops.
The big mover for grains was the Grains Stocks report that indicated inventories of corn on 1 March that were sharply higher than what was expected by analysts in pre-report surveys. The estimated inventory of 5.4 billion bushels was over 150 million bushels above the HIGHEST pre-report estimate and over 400 million —or 20 per cent — above the average, implying considerably less corn usage since 1 December. We know that ethanol usage of corn has been sharply lower but this stock figure implies sharply lower feed use as well — even though meat and poultry production has been higher during that period. A good portion of that increase is due to higher cattle weights which have been driven by the impacts of beta-agonist feed additives which cause very efficient gains late in the animals’ feeding period. But hog and chicken numbers are larger than last year and we doubt that feedlot efficiency alone can drive that kind of change in corn feed usage. To say the least, the grain stocks numbers still mystify us a bit.
To understand the importance of these numbers, consider the implied drawdown of corn stocks in the chart at right. The 2013 number is the smallest since 2003 and is 28 per cent smaller than last year. Note that the quarters here are relative to the crop year (Q1 is Sep-Nov, etc.).
But livestock producers will not look a gift grain bin in the mouth (or door or whatever else you want to put in here)! This report has pushed nearby corn futures down nearly $1.00 per bushel in the past two days and new crop December corn closed at $5.35 yesterday, $0.36/bushel lower than on Wednesday of last week. That reduction has added about $7/head to our hog profit forecast for 2013, a terrific change but the projected LOSSES are still about $12/head. New crop futures are now within $0.70 or so of USDA’s forecast 2012-13 season average corn price of $4.80. With so much risk still ahead for this crop, it is probably time to start pricing feed needs for 2012-13 — not all feed of them yet, but some. If the weather is good, $5.50 corn futures will be corn that feeders buy this year but they may also be the cheapest.
The much-anticipated report that turned out pretty boring on Thursday was Prospective Plantings. The numbers came in pretty close to what was expected by analysts. That is especially true for corn and wheat estimates which are both within 100,000 of the average prereport survey estimate. The only thing really noteworthy about the corn figure is that, should it come to pass, it will be the largest area planted to corn since 1936. Planned soybean acres did come in near the bottom of the estimate range, adding some fuel to the soybean complex Thursday afternoon.
But the real story may be WHERE THE CORN ACRES are located. The tables below clearly show that Cornbelt producers may be tiring of the corn-on-corn yield drag and that we are very dependent on what happens in the South and Mid-South states this year. And harvest comes early in those areas, so their 1MM additional acres may be quite important for feed supplies in THIS crop year!
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