Welch on Grain: Feed Usage Down from Last Year

    Market Situation

    Feed Use. Friday’s Cattle on Feed Report showed placements in December up 1% from a year ago, marketings down 1% and numbers on feed as of January 1 at 95% of year earlier. In the corn marketing year to date, total cattle numbers on feed are down 6%, both from a year ago and the 5-year average.

    Broiler chicks placed are running 2% above year ago levels and very near the 5-year average.

    All grain consuming animal units (poultry, pork, cattle) in 2013 are down 1.4% from 2012, but energy feed per grain consuming animal unit is up 13.4%, to levels last seen in 2007.

    As a percentage of total grain consuming animal units, cattle are at their lowest point, 36%, pork at its highest, 30%, and poultry near all-time highs at 34%.

    Fuel Use. Updated numbers from the Agricultural Marketing Resource Center at Iowa State University show average profits from manufacturing ethanol increasing sharply in December. Input costs were steady and ethanol prices increased 17% and ddgs up 3%.

    Ethanol production, reported by the Energy Information Administration in its Weekly Petroleum Status Report, continues to run 8% above year ago levels and 3% above the 3-year average. Current production levels imply the use of 4.9 billion bushels of corn in the current marketing year.

    EIA updates ethanol consumption monthly in the Short Term Energy Outlook. This report for January showed ethanol use in the current corn marketing year running ahead of last year by 5% and 4% above the 3-year average.

    Exports. Corn exports this marketing year continue strong, despite recent controversy over shipments to China. After sluggish numbers reported over the Christmas holidays, export sales the last two reporting periods are averaging 30 million bushels a week. The average for the marketing year has been about 35 million bushels. A sales pace of 8 million bushels per week is required to reach USDA’s revised export projection of 1.450 billion bushels.

    Outside Markets. From IHS Global Insight:

    Existing home sales ticked up 1.0% in December, rising to a 4.87-million-unit annual rate. This figure experienced some turbulence in the second half of the year. The beginning of “taper talk” prompted a strong third quarter, which was followed by comparative weakness in the tail end of the year. December’s report brought some signs of life; in both the West and the South–which collectively account for 60% of sales–price gains for single-family homes accelerated year on year, while sales volumes picked up. This is evidence of strong underlying demand.

    We anticipate that fourth-quarter GDP growth will come in around 3.5%; last quarter’s inventory boost will become a drag, but strength in exports and consumption will balance out some of that effect. New home sales likely fell 3.6% in December, but still maintained strong gains for the quarter. December durable goods orders likely advanced 1%, as strong aircraft numbers offset a decline in core capital goods. Year-on-year growth in the S&P/Case-Shiller Home Price Index likely slowed in November, to a still-strong 12.9%. Personal incomes likely rose 0.2% in December; inflation-adjusted spending should fall 0.2%. Both measures of consumer confidence likely fell in January thanks to the weak jobs report. The Conference Board’s measure probably shed 1.2 points. The Reuters/University of Michigan measure likely improved over its midmonth reading, but still ended January down 0.7 point from December.

    Wednesday, 29 January – FOMC meeting and statement Despite the deeply disappointing employment report for December, the Federal Reserve is expected to forge ahead with its taper plans. There is near-unanimity on the committee that the taper should continue. This means another $10-billion slowdown in the monthly pace of asset purchases, to $65 billion, split evenly between Treasuries and mortgage-backed securities. Meanwhile, the Fed will also have to address its forward guidance for interest rates, namely that it won’t raise them so long as unemployment hits 6.5%. At 6.7%, the unemployment rate is within striking distance of this threshold. But an overwhelming majority of Fed members don’t anticipate raising interest rates until next year at the earliest. So we look for some adjustment to the Fed’s forward guidance. In particular, reference to a 6.5% jobless rate as a threshold will likely be altered. But a lower threshold isn’t likely to take its place, according to the last meeting’s minutes. One possibility is for the Fed to emphasize its projections for interest rates (and perhaps release them more frequently) and to say it will consider a broad set of employment indicators.

    Marketing Strategies

    2014 Corn Marketing Plan. Production numbers for 2013 should be pretty well set and use numbers continue to look strong. This should provide modest upward price movement into spring. I will take advantage of this turn in the market to price the first 20% of 2014 production, using technical tools to time this sale. There is still a long way to go in this marketing year with plenty of uncertainty ahead. I hope the price I lock in this early is the worst of the year, I have plenty more corn to sell. If prices do move lower, I will be glad to have gotten some priced at this time.

    Upcoming Reports/Events.

    February 20-21. USDA Agriculture Outlook Forum, Arlington, VA

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