Welch on Grain: Firm Demand for Feed, Strong Ethanol Production

    Market Situation

    Grain Use. Reports related to grain use released recently generally show firm demand for feed grain.

    Ethanol production for the week of December 30th was an all-time record high of 43.806 million gallons per day. The average so far this corn marketing year suggests grain for fuel use 100 million bushels above the estimate in the December WASDE.

    The December Cattle on Feed Report showed on-feed numbers down from December 2015, 10.665 million head compared to 10.809 million (-1%). For the corn marketing year, on cattle on feed inventories are -0.3% from last year and -2.7% from average.

    The big increase in livestock numbers came in the Quarterly Hogs and Pigs report. The U.S. All Hogs and Pigs inventory was 71.5 million head, 3.7% above last year and up 6.6% from the average. While the December 1 number is not a record (that was 83.741 million head in 1943), 2016 did set record highs for hog and pig inventories in March, June, and September.

    Broiler chick placements continue to run above year ago and average levels, +2.2% and +4.2%.

    Corn export sales in the 2016/17 marketing year are currently at 63% of USDA’s marketing year target of 2.225 billion bushels. Normally by the end of December, 55% of the yearly sales are on the books, 63% by the end of January.

    Grain sorghum exports were basically flat to end the calendar year.  Current sales commitments stand at 119 million bushels of the 250 million projected for the year (48%). Week to week, China continues to be the dominant export destination for U.S. sorghum.

    Grain Commentary

    Unable to display feed at this time.

    Outside Markets. The minutes of the Federal Open Market Committee of the Federal Reserve from December were released on Wednesday. Minutes of the meetings of the FMOC are usually released 3 weeks after any policy decisions are made. In December, the committee raised the target range for the federal funds rate to ½ to ¾ percent on an improving labor market and the expectation that inflation would reach the 2% objective over the medium term.

    As to future rate hikes, the committee noted they would come in response to evolving economic conditions but, ” …almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years”.

    But even if more rate increases are seen in 2017:

    The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” (

    The December jobs report released this morning showed an increase of 156,000 jobs in December and the unemployment rate up slightly to 4.7%.  The broader measure of unemployment which includes people working part time but seeking full time positions, U6, is down to 9.2%, the lowest since April 2008.

    In November, U.S. inflation as measured by the Consumer Price Index was up 1.7% compared to a year ago. Lower meat and grain prices are contributing to a decline in the food inflation index, down 0.4%. The USDA Economic Research Service notes in its Food Price Outlook, 2016-17 that supermarket prices are expected to decline in 2016 (annual deflation) for the first time since 1967

    Marketing Strategies

    Seasonality. Though every crop year is different, the seasonal index for the December corn futures contract indicates that favorable pricing opportunities are more likely in the first half of the crop year.

    2017 Feed Grain Marketing Plan.  I have done no pre-harvest pricing of the 2017 crop. I look for growing conditions in South America and early estimates of next year’s acreage to shape the early season price prospects for next year’s crop.

    Conditions in Brazil at this time are generally favorable putting downward pressure on prices but the soybean to corn price ratio suggests a significant shift in acres in the U.S. next year.  The 20-day average of the November soybean to December corn price ratio for 2017 is 2.6.

    That is a level that favors soybean returns over corn returns in many mid-west crop budgets.  Last year the price ratio of the RMA base prices was 2.29; the ratio during the survey period for the Planting Intentions report was 2.35.

    Upcoming Reports/Events.
    January 8-14 – The Executive Program for Agricultural Producers, information available at
    January 10 – Short-term Energy Outlook January 12 – Crop Production; WASDE; Grain Stocks; Winter Wheat and Canola Seedings
    January 25-26 – Feed Grain Marketing Plan Workshop, Amarillo
    January 27 – Cattle on Feed

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