Welch on Grain: No Changes to Corn, Sorghum Balance Sheets

    Market Situation

    WASDE. USDA made no changes to the U.S. corn or sorghum supply and demand balance sheets in today’s World Agricultural Supply and Demand Estimates. Ending stocks of corn at the end of the 2014/2015 marketing year are still expected to be 1.726 billion bushels, a 50% increase over last year’s 1.146 billion bushels.

    Revisions were made to world corn numbers: supply is up 2.7 mmt on increased production estimates from Europe and the FSU-12; consumption is up 1.8 mmt on higher feed use; ending stocks are up about 1 mmt.

    Estimated days of use on hand at the end of the marketing year are now a 68.9 day supply, up from 68.7 last month and 65 days of supply last year. This would be the fourth consecutive year of increased corn supplies, and like wheat, midway between 10-year and 20-year averages.

    Crop Progress. Monday’s Crop Progress report from USDA indicates the 2014 corn crop is in better than average condition, a crop score of 385 compared to a 371 average. The percent of crop rated good and excellent this week is 75%, compared to 76% last week; very poor and poor is 4%, up from 2% last week.

    Corn Use. With the drought reduced crop in 2012, corn exports in the 2012/2013 marketing year fell to 731 million bushels, a 40-year low. This number has rebounded in the 2013/2014 marketing year to 1.9 billion bushels, a projection that has been revised higher in almost every WASDE report since last August. Exports were not increased in today’s WASDE.

    Even with these monthly revisions, the pace of corn export sales in the old crop marketing year are well ahead of a normal pace. Normally at the end of May, 90% of the projected sales for the year are on the books; this year at the end of May, 96% of the current 1.9 billion bushel projection had been sold.

    The 2013/14 marketing year began with sales commitments at 26% compared to a normal level of 30%. September sales were slow as well with 5% of the marketing year total committed compared to a normal level of sales of 7%.

    Then in October weekly sales were not reported due to the shutdown of the Federal government. Export sales commitments in October usually account for about 7% of the marketing year total. When reporting resumed, October sales were revealed to be twice that at 15%. This was followed by other months well above normal: January, 11% versus 8% normal; and February, 9% versus 7% normal.

    Since that time the pace of sales has returned to normal or even below in the case of April.

    With 3 months remaining in the marketing year and only 4% left to be sold (83 million bushels), USDA expects the pace of sales to continue to decline as it left the 1.9 billion bushel marketing year total unchanged in today’s WASDE.

    The Short Term Energy Outlook from the Energy Information Administration yesterday showed ethanol consumption in May was 98% of average and 96% of last year’s use levels. For the corn marketing year, consumption is above these two benchmarks by 2%. Again, USDA left its corn fuel use estimate unchanged in today’s WASDE.

    Ethanol production and stock levels continue to increase. Today’s Weekly Petroleum Status report from the Energy Information Administration shows ethanol production of 37.877 million gallons/week, 7% above last year and 5% above the 3-year average. Stocks of 773.724 million gallons are 15% higher than last year but 11% those of 2011/2012.

    Outside Markets. The Bureau of Labor Statistics released the May Employment report on Friday. Payroll employment for the month increased by 217,000, in line with analysts’ expectations of a 215,000 to 220,000 gain in jobs. However the unemployment rate held steady at 6.3% rather than increase to 6.5% as expected.

    A broader measure of unemployment, U6, reports not only persons actively seeking employment but also those who have given up looking for work out of frustration and those working at a part-time job but would prefer full-time work. This number fell from 12.3% in April to 12.2% in May. The spread between U6 and U3 stands at 5.9, down from 6.0 last month. That difference of 5.9 matches a recent low in February and is down from highs set post-recession of 7.3 in April 2010, September 2010, and September 2011. The average of this difference from December 2001 to November 2007, prior to the most recent recession, was 3.7.

    Of course unemployment is one gauge of economic recovery monitored by the Federal Reserve as a reason for keeping interest rates low. At question is whether normal unemployment will be determined not only by U3 but also account for the difference between U3 and U6. The trend is in the right direction but U3 is much closer to being back to normal than the U6/U3 difference.

    Marketing Strategies

    2014 Corn Marketing Plan. I am 40% priced on 2014 feed grain production. My next sales objective is this month around the time of the Acreage and Grain Stocks reports. The corn market has been under pressure with better than normal crop conditions and a favorable weather outlook (see today’s Wheat Outlook for specific weather forecasts).

    Today’s report offered no information to suggest a change in the expected increase in ending stocks in the 2014/2015 marketing year. Based on the recent relationship between ending stocks and the October average of the December futures contract, current acre, yield, and use projections suggest a corn price this fall just below $4.00.

    If we hold yields constant but increase acres by 1 million, that price falls to $3.84. If we increase acres by 1 million and increase the average yield to 167 bushels per acre, the price estimate falls to $3.71. Of course these factors could change in the opposite direction offering support for higher prices. The point being even though we are currently testing lows in the corn market, we may have more room to fall.

    Upcoming Reports/Events.

    June 16 – Crop Progress
    June 17 – Consumer Price Index
    June 20 – Cattle on Feed
    June 23 – Crop Progress
    June 27 – Quarterly Hogs and Pigs report
    June 30 – Crop Progress, Acreage, Grain Stocks

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