Welch on Grain: U.S. Corn Stocks Lowered

    Market Situation

    WASDE. USDA lowered projected ending stocks for U.S. corn in yesterday’s World Agricultural Supply and Demand Estimates. No changes were made to the supply side of the balance sheet but a 150 million bushel increase in exports lowered ending stocks by a like amount. This lowered the stocks to use ratio from 12.4% last month to 11.1%.

    World corn supplies increased in February by a net 730,000 tons (28.7 million bushels) due mostly to an upward revision in beginning stocks. World corn use estimates increased 3.7 million metric tons (146 million bushels) on higher feed use. World corn ending stocks are estimated at 157.3 mmt (6.2 bil bu), down from 160.23 mmt in January.

    Stocks measured in days of use on hand at the end of the marketing year are 60.86, down from 62.24 last month and near the ten year 60-day average.

    From IHS Global Insight:

    The January jobs report was another disappointment, with only 113,000 payroll jobs created. This was up only slightly from December’s 75,000 gain and means that we can no longer dismiss December’s poor numbers as an aberration. However, the household survey numbers were exceptionally strong, with employment growth of 638,000 and a reduction in the unemployment rate to 6.6%. The labor-force participation rate and employment/population both increased, while broader measures of unemployment and long-term unemployment improved. There’s enough negative evidence in this report to help validate a softening of GDP growth from the fourth quarter’s 3.2% to 1.9% in the first quarter, mostly due to a slowing of inventory growth. But we still believe the economic fundamentals remain strong and reaffirm our forecast of an acceleration of growth later in the year. At this time, we think the Federal Reserve will focus on the unemployment rate decline and continue to “taper” in March.

    The trade deficit widened by $4.1 billion to $38.7 billion in December on a broad-based drop in goods exports. North America (i.e., Canada and Mexico) and the European Union accounted for more than the entire drop. Exports to China, which surged recently, fell by $3.5 billion. A small $0.6-billion increase in imports also contributed to the wider deficit. The December trade gap was wider than the Bureau of Economic Analysis assumed when it calculated fourth-quarter GDP growth–which is likely to be revised down 0.4 percentage point as a result of this release.

    The ISM manufacturing index dropped 5.2 points, to 51.3, indicating a pronounced deceleration in the manufacturing expansion. New orders tallied 51.2 and production scored 54.8, a respective 13.2 points and 6.9 points cooler than in December. Businesses invested in inventories at unsustainable rates in the latter half of 2013. We are now witnessing a correction that will dampen GDP growth over the first half of this year.

    Marketing Strategies

    2014 Corn Marketing Plan. The trend of increasing corn use estimates, in the face of a record large U.S. corn crop in 2013, has provided modest price strength the last several weeks.

    I am ready to price the first 20% of 2014 production, using technical tools to time this sale. In a trending market, two such tools are moving averages and Moving Average Convergence Divergence (MACD). With moving averages, a sell signal is generated when

    Price<4-day moving average<9-day moving average<18-day moving average.

    Today’s close did not trigger a sale.

    A sell signal using the MACD histogram occurs when the divergence of averages changes from positive to negative, or vice versa. Today’s divergence is still positive (above 0), so that tool did not trigger a sell signal today either. If we are moving from a trending market to a sideways price pattern, tools such as stochastics or bollinger bands may be more appropriate.

    Upcoming Reports/Events.

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

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