Welch on Grain: Corn Production Virtually Unchanged from Last Year

    Market Situation

    WASDE. The U.S. corn production estimate for 2014 is virtually unchanged from last year according to the first official estimates from USDA, released in today’s World Agricultural Supply and Demand Estimates. While a crop of 13.935 billion bushels is expected, corn use is expected to decline by 250 million bushels on lower feed use (-50) and lower exports (-200). The stocks to use ratio at the end of the 2014/2015 marketing year is expected to increase to 12.9% from 8.4% in 2013/2014.

    World corn production is unchanged for 14/15 at 979 mmt. Use is increased by 17 mmt but this is offset by a 30 mmt increase in beginning stocks. Measured by days of use on hand at the end of the marketing year, corn supplies at the end of the new crop marketing year are estimated at a 68.7 day supply, up from 64.8 in 13/14.

    Outside Markets. From IHS Global Insight on May 2, 2014:

    Employers added 288,000 jobs in April, above expectations. Both the February and March estimates were revised higher. Not only was there good job creation, the breadth of job creation was solid. Average payroll growth for February-April is now 238,000, close to where it was in November before weather became an issue. The unemployment rate fell 0.4 point, to 6.3%, but only because the labor-force participation rate fell by the same amount, to 62.8%. Employment in the household survey fell a bit. Overall, this report indicates that the labor market is returning to form, and will likely create 200,000 jobs per month on average going forward. Near term, the drop in unemployment was probably too large to stick. We expect the jobless rate to increase next month.

    First-quarter GDP grew at a snail’s pace of 0.1%. But final sales to domestic purchasers increased by 1.5%, depressed by especially adverse weather conditions and several special factors. Consumer spending increased 3%, though largely due to temporary factors such as energy services from the cold weather and healthcare spending as the Affordable Care Act became operational. Business fixed investment, inventories, exports, and housing were all negatives for GDP growth. The central challenge for the short-term outlook remains parsing out what share of this weakness is weather-related, due to one-off events, or something more cyclical. We still hold to our 2014 GDP forecast of around 2.4% growth, with growth accelerating in each of the three remaining quarters.

    Latest Federal Reserve meeting concluded exactly as we expected. The Fed has all along thought that the weakness earlier this year was weather-related and therefore temporary. With evidence to back up this assertion, the committee cut the pace of bond purchases by another $10 billion, to $45 billion per month. But the Fed still believes that the economic recovery needs support from policy accommodation. So it will continue buying bonds, though at a declining rate, for the remainder of the year, while keeping interest rates low until it sees sufficient improvement in the labor market and a pickup in inflation towards its 2% target. Notably, the Fed is unlikely to respond to the sharp drop in the unemployment rate during April, by accelerating the taper or raising interest rates sooner than thought. The totality of labor-market indicators suggest there is still ample slack and further room for improvement.

    The main items on next week’s calendar include the trade deficit for March and nonfarm business labor productivity for the first quarter. February’s trade deficit widened due to one-time events such as the royalty rights to the Winter Olympics (an import) and a large drop in exports of nonmonetary gold. In the absence of these distortions, and assuming a smaller bill for imported oil, the March trade deficit is expected to narrow by $1.8 billion, to $40.5 billion. Productivity is expected to have fallen 1.2% in the first quarter, as output and hours rose by 0.3% and 1.5%, respectively. Workers were likely compensated 2.1% more in the quarter, boosting unit labor costs by 3.3%.

    Marketing Strategies

    2014 Corn Marketing Plan. I have priced the first 20% of 2014 production. I will price the next 20% on this price move, using technical indicators to time the sale: simple trendlines; tools like moving averages and MACD as long as the market is in an upward trend; stochastics, relative strength index, or Bollinger bands if the market levels off into a sideways pattern.

    Upcoming Reports/Events.

    May 12 – Crop Progress
    May 16 – Cattle on Feed
    May 19 – Crop Progress
    May 27 – Crop Progress

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