Welch on Grain: Corn Condition Continues Above Average

    Market Situation

    Crop Progress. The U.S. corn crop condition index continues to run above average. The crop score increased from 373 to 375 this week as 2% of the crop moved from the good to excellent category. The average index score for this time of year is 366 and the average index trend is declining.

    WASDE. The influence of the Acreage and Grain Stocks reports were seen in the July WASDE. Corn planted and harvested areas were reduced lowering the 2015 production estimate by 100 million bushels (yield was unchanged). Just about as influential, higher than expected grain disappearance in the stocks numbers resulted in a revised new crop beginning stock estimate of -97 million bushels; old crop corn use was higher for feed (+50 million bushels), ethanol (+25 million bushels), and exports (+25 million bushels) .

    World corn carryover estimates were lowered from a 72 day supply in June to 70 days on lower carryin and slightly lower production. Use estimates were unchanged.

    Grain Use. The July Short-term Energy Outlook from the Energy Information Administration continues to show increased U.S. gasoline and ethanol consumption. Compared to last year, gasoline and ethanol consumption is up just over 2%.

    Outside Markets. The June employment report showed the U.S. economy added 223,000 jobs last month but revised estimates for April and May down by 60,000. The overall unemployment rate (U3) decreased from 5.5% to 5.3% (the lowest since April 2008) primarily due to a lower overall employment participation rate.

    The broader unemployment measure, U6, which includes persons working part time for economic reasons, fell from 10.8% to 10.5% with the difference between U6 and U3 decreasing to 5.2%. This is the smallest difference between these two employment measures since September 2008; the 21-year average difference between U3 and U6 is 4.7%. U3 is back within prerecession ranges while U6 is still above (most recent prerecession high, 10.4% in September 2003).

    The consumer price index for June showed the first year over year increase since last December, up a slight 0.12%. Food prices compared to a year earlier are up 1.8%.

    Both unemployment and inflation numbers will play a role in the timing of the Federal Reserve’s move to increase interest rates, many expecting that decision to come in September.

    The Fed has emphasized that even when that move comes, interest rates are expected to remain well below historical standards for an extended period of time. Higher interest rates in the U.S. while many other economies around the world struggle with growth will likely lead to a stronger dollar which is negative for U.S. agricultural exports.

    Marketing Strategies

    2015 Corn Marketing Plan. I split my third round of grain sales to 10% before the Stocks and Acreage reports and 10% after. The second leg of that strategy came Friday when the 4 and 9 day moving averages fell below the closing price and the MACD gave a sell signal. That puts me at 60% sold, with an average futures price (based on today’s close) of $4.12.

    The next window of pre-harvest sales is July and August with a focus on the August Crop Report. That report will include the first official yield estimate of the 2015 crop based on field samples. Private firms will be releasing their yield estimates as well. USDA left its yield estimate unchanged in the July WASDE at 166.8.

    Upcoming Reports/Events.
    July 24 – Cattle on Feed
    August 11 – Short-term Energy Outlook
    August 12 – WASDE (field survey-based production estimates)
    August 21 – Cattle on Feed
    January 10-16 – TEPAP (The Executive Program for Agricultural Producers), registration is now open here

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