Welch On Grain: Any Room For Late-Season Rally?

The list of major corn producing states with double digit ratings of poor and very poor held at 8 this week (% change from last week): Illinois, 14% (+3%), Indiana, 17% (+1%); Iowa, 12% (+0%), Kansas,14% (-1%), Michigan, 12% (-1%), Nebraska, 13% (+0%); North Dakota, 17% (-3%), and South Dakota, 27% (-4%).

Yield estimates from the Farm Journal/Pro Farmer Crop tour are not directly comparable to USDA’s numbers due to differences in sampling and yield calculations, but they came in pretty close. Pro Farmer pegs the 2017 crop at 167.1 bushels per acre compared to 169.5 from USDA.

Notable in the Pro Farmer commentary was the better than expected yields in Iowa and Nebraska given this season’s dry conditions. Additional field level surveys from USDA will appear in the September WASDE.

Grain Use

• Today’s Cattle on Feed report showed on-feed inventories in lots of 1,000 head or more at 10.604 million on August 1, 104% of a year ago and 105% of the 5-year average. Over the course of the corn marketing year, on feed numbers are up 1% compared to a year ago and right at the 5-year average.
• August 19 ended another strong week of broiler chick placements: up 4% compared to the same week a year ago, up 5% over average. For the 2016/17 corn marketing year, broilers placed are up 2%.
• With two more weeks to report, corn export sales commitments reached USDA’s target this week. Total sales commitments stand at 2.227 billion bushels with the current marketing year projection of 2.225 billion.
• Grain sorghum exports for the 2016/17 marketing year look like they will come up short compared to the 225 million bushel target set by USDA. Sales for the week of 8/17 totaled 2 million bushels with 32 million needed in the next two weeks to reach the goal.
• Ethanol production is ending the corn marketing year on a strong note, up 4% compared to last year and 12% above the most recent 5-year average. This move is likely explained by the same fall off in corn prices we are seeing this year as we did in 2016. For more on this topic, see the farmdoc daily publication, “Ethanol Prices Drive Corn Prices, Right?”.

Outside Markets.

Speaking today at the Federal Reserve Bank of Kansas City’s annual symposium, Fed Chair Janet Yellen gave a review of the U.S. and global financial system over the last 10 years, from the economic crisis of 2007/08 to the challenges remaining today.

She noted that banking regulations have made the U.S. financial system more resilient and better able to absorb adverse shocks to the economy, and that “Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad.” Yellen’s remarks did not offer insight into the timing or magnitude of future interest rate adjustments.

The Conference Board Leading Economic Index for July was up 0.3%. In notes accompanying the report, the Board cites widespread gains in almost all of its components except building permits. For the first six months of the year, the index is up at a 4.7% annual rate compared to 1.5% growth for the last 6 months of 2016.

The probability of recession increases when the index is down 0.3% for 3 consecutive months and more than -1% for the 3-month period.

Seasonality

The seasonal price pattern for the December corn contract shows that prices tend to fall off after we know more about acres (June 30 Acreage report) and weather during the precipitation and temperature sensitive silking and tasseling stages (July). With dry conditions impacting major corn growing areas, yield concerns have propped up prices more so than we would see in a normal year, compounded by significantly fewer corn acres this year. But recent price movement has been in line with seasonal expectations.

2017 Feed Grain Marketing Plan

I am 80% sold on the 2017 corn crop and will price the remaining 20% at harvest. I am turning my attention to the December 2018 contract and am prepared to make sales against next year’s crop if we get a significant late season rally.