Commodity Market Outlook
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- Margery Phelps
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1 Commodity Market Outlook Jim Hilker Professor and MSU Extension Economist Department of Agricultural, Food, and Resource Economics Michigan State University Market Outlook Reports for December 6, 2016 (Written December 6 for release in Michigan Farm News December 15) CORN March corn futures continue to trade in the $ range they have been trading in for four and a half months. As of this writing, March futures were around $3.60. While I am not projecting corn future will be breaking out to the upside of the range, I would suggest keeping track of it. We have to much corn for a huge rally, so we need to take advantage of what the market will give us. Export inspections and export sales to date for the corn marketing year have been strong. Export inspections, corn that has been shipped, to date are running 89% about year ago levels. And export sales to date, which include both inspections and sales for future delivery, are up 76%. And weekly shipments and sales continue to run above year ago levels. Did the USDA rise their projected corn exports in their December 9 Supply/Demand updates? There were no USDA 2016 corn production updates in December. The next USDA production update will be the January 12 release of the 2016 Annual Crop Production Report, which generally are the final numbers. The December 1 Quarterly Stocks Report will be released by the USDA on January 12 as well. It will be the first indication of the feeding rates to date, and will help estimate feed use to date. Futures suggest they will pay about three cents a month for storage, and the basis being offered on forward cash contract are not adding much if anything to that. Probably pays for on farm storage, does not suggest paying commercial storage.
2 WHEAT March Chicago wheat futures traded on the $ range from August 26 through November 28. Then it broke out on the downside, and is now fighting to get back in. Not a pretty picture and it is unlikely to change soon. Export Inspections and Export Sales to date have also been positive for wheat. Export Inspections are up 29% year to date, a bit better that the annual 26% increase estimated by the USDA in their November updates. Wheat export sales are up 31% year to date. On December 6 Canada put the size of their 2016 wheat crop at MMT, up from MMT in their September estimate. This on top of the Australian government estimating a record high wheat crop of 32.6 million metric tons on December 5, put a damper on the bullish weekly export numbers. Were there changes made in the December 9 USDA wheat supply/demand updates, especially exports? Remember the wheat marketing year is June 1 through May 30, so we are well into the marketing year. On January 12 the USDA will also update the 2016 wheat production estimates. And on the same day the USDA will release the December 1 Quarterly Stocks Report and the Winter Wheat Seedings report. The stocks report will be half way through the wheat marketing year. The big question is, will seeding be down substantially? Remember, seeding have been trending down for several years, how low will they go? While the Chicago wheat futures suggest the market will pay for on farm storage under a hedge, and the few forward cash contracts for old crop wheat suggest the same, I would check locally before holding it any longer. SOYBEANS January soybean futures traded in a range of $ , yes a pretty big range, from July 21 through November 21 before breaking out to the high side. They reached a high of $10.65, and were at $10.49 as of this writing. How much more is there? Export Inspections and Export Sales are strong this marketing year to date. The soybean marketing year is September 1 through August 31, the same as corn. Export inspections to date are up 19%, the USDA was projection a 6% increase as of their November updates. Export sales to date were up 27% year to date. What did the December 9 USDA supply/demand updates say?
3 One of the big drivers for soybean prices recently has been the problems with palm oil production. Soymeal futures have remained in the range they have been in since late August, but soy oil futures are the highest they have been in way over a year. Or in other words, soy oil is carrying soybeans. This is also showing up in export sales to date. Soymeal export are down 12% year to date, and Soy oil export sales are up 12% year to date. The 2017 December/November Corn/Soybean price ratio is 2.65 at this point. This suggests soybeans will have a considerable higher return per acre than corn next year if this ratio holds, all else constant. I see a 3 million acre shift to soybeans from corn, close to a recent USDA long term forecast, some in the trade are suggesting 4-5 million acre shift. What will this means to the corn/soybean price ratio at harvest? Consider watching for new crop pricing opportunities, consider setting some piecing goals. It is hard to see how new crop soybean prices will stay where they are at if, big if, we have this acreage shift and the U.S. and South America have trend yields. Soybean futures and forward cash contracts for old crop suggest the markets are willing to pay for on farm storage through March, but not beyond. CATTLE On October 13 March live cattle futures hit a low of $97.80, as I write they are $ The 5 Area Weekly Steer Price Average hit a low of about $97 the week ending October 14, and averaged about $114 the week ending December 2. Prices are now closer to what my analysis of the fundamentals would suggest. Feeder cattle futures took the same path, but for many in the cow-calf business the rally was a month or two late. Weekly cattle slaughter year over year has been up 5-10% recently. Cattle slaughter year to date is up 5.5%. Beef Production year to date is up 5.7%. This would indicate that cattle weights year to date are up a bit, and earlier in the year they were. However, live weights the past two report weeks were 1384 pounds, down from a year ago when they were 1398 pounds. Dressed weights the past two weeks are down a couple of pounds relative to a year ago.
4 This is a good sign, in that cattle feeders are keeping more current. This probably needs to continue. Consider pricing as they become current. If the rally continues, we may want to consider starting to look at some short term forward contracting. HOGS On October 5 the February lean hog futures hit a low of $47.52, as I write they are $57.48/cwt. The December low to now is even greater, a $13/cwt increase. We are now about past the tight slaughter capacity issues, and with new Michigan and Iowa plants being on line by next fall, it should no longer be an issue. Hog slaughter year to date is up 1.8% relative to last year. And Pork production is up 1.1%. This indicates lower slaughter weights, this year versus last year. Live hogs being brought in are down 3 pounds relative to the same week a year ago, 283 versus 286. Dressed weighs were down as well, 211 this past week from 214 a year ago. This is a good sign, in that hog producers are keeping more current. This probably needs to continue. Consider pricing as become current. If the rally continues, we may want to consider starting to look at some short term forward contracting.
5 Est. Proj (million acres) Acres Planted Acres Harvested Yield/Bushels (million bushels) Beginning Stocks Production Imports Total Supply Use: Feed & Residual Food, Seed & Ind Ethanol for fuel Total Domestic Exports Total Use Ending Stocks Ending Stocks, %of Use U.S. Loan Rate $1.98 $1.98 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 $1.95 U.S. Season Ave Farm Price, $/Bu. $2.32 $2.42 $2.06 $2.00 $3.04 $4.20 $4.06 $3.55 $5.18 $6.22 $6.89 $4.46 $3.70 $3.61 $3.30 Source: USDA/WASDE and Jim Hilker. ( ) TABLE 1 SUPPLY/DEMAND BALANCE SHEET FOR CORN
6 Est. Proj (Million Acres) Acres Planted Acres Harvested Bu./Harvested Acre (Million Bushels) Beginning Stocks Production Imports Total Supply Use: Food Seed Feed and Residual Total Domestic Exports Total Use Ending Stocks Ending Stocks, %of Use U.S. Loan Rate $2.80 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 $2.75 U.S. Season Ave U.S. $/Bu. $3.40 $3.40 $3.42 $4.26 $6.48 $6.78 $4.87 $5.70 $7.24 $7.77 $6.87 $5.99 $4.89 $3.70 Michigan $/Bu. $3.35 $3.01 $3.13 $3.41 $5.01 $5.63 $4.25 $5.72 $6.70 $7.75 $6.70 $5.60 $5.00 $3.75 Source: USDA/WASDE and Jim Hilker ( ) TABLE 2 SUPPLY/DEMAND BALANCE SHEET FOR WHEAT
7 Est. Proj (Million Acres) Acres Planted Acres Harvested Yield/Bushels (Million Bushels) Beginning Stocks Production Imports Total Supply Use: Crushings Exports Seed Residual Total Use Ending Stocks Ending Stocks, %of Use U.S. Loan Rate $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 U.S. Season Ave Farm Price, $/Bu. $5.53 $7.34 $5.74 $5.66 $6.43 $10.10 $9.97 $9.59 $11.30 $12.50 $14.40 $13.00 $10.10 $8.95 $9.20 Source: USDA/WASDE and Jim Hilker. ( ) TABLE 3 SUPPLY/DEMAND BALANCE SHEET FOR SOYBEANS
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