Feed Grain Outlook. U.S. Planted Acres USDA Outlook Forum February February 24, 2017 Volume 26, Number 11

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1 Today s Newsletter Market Situation Outlook Forum 1 Grain Use 3 Outside Markets 5 Marketing Strategies Seasonality Feed Grain Marketing Plan 7 Upcoming Reports/Events 10 Market Situation USDA Agricultural Outlook Forum. USDA s baseline model supply and demand projections for the 2017/18 crop marketing year show combined corn, soybean, and wheat acres at million, down from million last year and the lowest in 6 years. These projections are based on the assumption of normal weather and will be updated in the May World Agricultural Supply and Demand Estimates. That update will be the first official estimates of the 2017/18 crop year including information from the Planting Intentions report, survey-based wheat production estimates, and supply and demand forecasts for specific countries. The acreage relation between U.S. corn and soybeans looks more like it did in the early 2000s rather than the strong increase in corn relative to beans in the midst of the ethanol boom. Corn is projected at 90.0 million in 2017, down from 94.0 million last year while beans of 88.0 million (an all-time record high) are up from 83.4 million. All wheat acres are projected at 46.0 million for 2017, down 4.2 million from Million acres 100 U.S. Planted Acres USDA Outlook Forum February Corn Soybeans Wheat USDA, 2/24/2017 1

2 The combined total of million corn, soybean, and wheat acres is 3.6 million acres less than 2016 and is the lowest since million in All three of these crops saw record high yields in Given the model s assumption of normal weather in 2017, production projections of all three crops are lower, even soybeans, where the increase in acres does not compensate for the yield adjustment. Corn Supply and Demand. The drop in corn acres reflects the price relationship between corn and soybeans that has been in place since last summer. The soybean price relative to corn has been above 2.5 which means soybeans show to be more profitable than corn for many Midwest farmers. USDA s corn trendline yield of bushels per acre is about 4 bushels less than last year. In the report, USDA notes that this is a weather adjusted trend. Using yields since 1960, a straight line yield projection for 2017 is 167 bushels per acre. USDA s acreage and yield numbers combine for a billion bushel corn crop in 2017, down over a billion bushels from But higher beginning stocks cut that loss in half, total supply is only down 505 million bushels. A yield of 167 bushels would lower production to billion bushels, down 1.4 billion from last year and lower the total supply by 800 million bushels. USDA notes that while it cut corn use by 400 million bushels in the coming marketing year, it is still the second highest corn use total on record. The big change is in the export category where an increase in foreign production is expected to create more export competition. The export projection of 1.9 billion bushels is down from billion currently, a drop of 325 million bushels. The other significant adjustment is to the feed and residual category. Grain consuming animal units are expected to increase again in 2017 but USDA lowered this number expecting the residual portion to decline with a lower level of production. With the corn supply in 2017/18 down 500 million bushels and use down 400 million, ending stocks are lower but only by 100 million bushels. Projected ending stocks drop from billion to billion and the stocks to use ratio declines from 15.9% to 15.6%. That small of a change suggests an increase in the season average farm price of 10 cents, from $3.40 in the 2016/17 marketing year to $3.50 in 2017/18. That would drop the PLC payment in 2017 to 20 cents per bushel, down from a projected 30 cents in

3 U.S. Corn S&D USDA Agricultural Outlook Forum February 2017 Planted Acreage (Mil. Acs.) Harvested Acreage (Mil. Acs.) Yield (Bushels) 16/17 17/18 Δ Supply Million Bushels Beginning Stocks Production Imports 1,737 15, ,320 14, ,083-5 Total Supply 16,940 16, Disappearance Feed and Residual Food, Seed & Industrial Fuel Exports 5,600 1,445 5,350 2,225 5,450 1,470 5,400 1, Total Use 14,620 14, Ending Stocks 2,320 2, Carryover/Use (%) Average Farm Price ($/Bu.) Grain Use. Exports sales reported this morning for the week of February 16 th show corn well ahead of the pace needed to reach the marketing year target while grain sorghum is lagging behind. Corn export sales commitments for the marketing year stand at billion bushels, 76% of the projected billion for the marketing year. The current pace needed to reach that target is 20 million bushels per week. Grain sorghum sales of 137 million bushels are 61% of the marketing year target with a pace of 3 million per week need to reach 225 million for the year. 3

4 Mil bu 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1, U.S. Corn Export Sales Commitments, 2016/17 MY Weekly Net Sales Cumulative Net Sales Projected MY Total Top Importers, Current MY, mil. bu Mexico 415 Japan 305 Korea 138 Colombia 114 Peru 82 Pace to reach target: 20.1 Export Sales Commitments for the week 2/16/2017: 29 million bushels Total Export Sales Commitments this marketing year: 1,682 million bushels 76% of the 2016/17 MY Export Sales Target of 2,225 million bushels (February WASDE) Normal pace of sales end of February: 70% USDA, Foreign Agricultural Service: U.S. Grain Sorghum Export Sales Commitments, 2016/17 MY Mil bu 300 Projected MY Total Cumulative Net Sales Top Importers, Current MY, mil. bu China 104 Mexico 7 Japan Weekly Net Sales Pace to reach target: 3.3 Export Sales Commitments for the week 2/16/2017: 3 million bushels Total Export Sales Commitments this marketing year: 137 million bushels 61% of the 2016/17 MY Export Sales Target of 225 million bushels (February WASDE) Normal pace of export sales by the end of February: 71% USDA, Foreign Agricultural Service: 4

5 This afternoon s Cattle on Feed report showed total on feed February million head, 101% of a year ago and 98% of the five year average. So far this corn marketing year, cattle on feed are running on par with year ago and 2.7% below average. 000 head 12,000 11,500 11,000 10,500 10,000 9,500 Cattle on Feed 1,000+ capacity feedlots February 1, % of last year 98% of average MY to date Year ago: -0.0% Average: -2.7% 9,000 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 5-yr avg 2015/ /17 Source: USDA/NASS, Outside Markets. The University of Michigan Consumer Confidence index for February was released this morning showing an index value of 96.3, down from 98.5 in January. The 3-month moving average is still the highest since March of In the report, chief economist Richard Curtin notes the data suggest a growth rate of 2.7% in consumption for Generally, an index value above 90 suggest strong growth economic growth, a softening economy, and below 80 weak economic conditions ( 5

6 The Conference Board released its index of leading economic indicators last week. The index is comprised of 10 economic components and is designed to predict the future direction of the overall economy. Dr. David Kohl notes that if this index is down 0.3% for three consecutive months and more than 1% for the 3-month period, the probability of recession rises dramatically Conference Board Leading Economic Index (LEI) The Conference Board, February 17, LEI Prices as of 2:30 pm CST: I QTR Jan 24-Feb net change % change S&P 500 Index % CRB Commodity Index % MAY 17 Crude Oil (0.45) -0.82% MAR 17 Copper % MAR 17 Dollar Index (2.09) -2.02% MAR 17 Corn % JUL 17 Corn % DEC 17 Corn % 6

7 2-month chart: December 26, 2016 through US$: WTI: HGH: 2.67 ETH: 1.55 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. The pattern so far this year is consistent with the average seasonal index Feed Grain Marketing Plan. We are near the end of the window of RMA base price discovery. Currently, the 20-day average of the November soybean to December corn price ratio for 2017 is 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

8 Price December Corn Futures and Seasonal Index Patterns Index CZ17 30-yr avg 10-yr avg Nov Soybean: Dec Corn Price Ratio Plant Soybeans RMA Price Discovery March Planting Intentions Survey Plant Corn SB:C ratio 20 day MA 8

9 Today s supply and demand projections for corn show a small decrease in ending stocks with 90 million acres planted and a yield of about 171 bushels. At the current use level, a small increase in yield above trend, about bushels, and ending stocks would be constant. A yield of 171 bushels and 91 million acres does the same thing. That indicates that with only minor changes to production, ending stocks do not go down at all and the upward price pressure for 2017 would be off. A straight line trend yield estimate of 167 bushels means we need 93 million acres to keep stocks steady. Area and Yield Needed to Produce billion bushel crop Corn Use Estimate at USDA Outlook Forum, February 2017 Bushels per acre Add to Ending Stocks Reduce Ending Stocks Planted acres, millions 9

10 I have priced the first 20% of the 2017 feed grain crop at 390¾. My next pricing window is around the upcoming Planting Intentions report, planting conditions, and weather outlook. /bu December Corn Futures and 2017 Marketing Plan 20% 20% 20% 20% 20% South American crop conditions Battle for Acres Planting Intentions Sold 20% at 390¾ Planting Intentions Grain Stocks Early season crop conditions/ progress Weather outlook Acreage Report/ Grain Stocks Weather Tassel and August Crop Report Cash sales at harvest 9/16/2016 9/28/ /10/ /20/ /1/ /11/ /23/ /6/ /16/ /29/2016 1/11/2017 1/24/2017 2/3/2017 2/15/2017 2/28/2017 3/8/2017 3/16/2017 3/24/2017 4/1/2017 4/9/2017 4/17/2017 4/25/2017 5/3/2017 5/11/2017 5/19/2017 5/27/2017 6/4/2017 6/12/2017 6/20/2017 6/28/2017 7/6/2017 7/14/2017 7/22/2017 7/30/2017 8/7/2017 8/15/2017 8/23/2017 8/31/2017 9/8/2017 9/16/2017 9/24/ /2/ /10/ /18/ /26/ /3/ /11/ /19/ /27/ /5/ /13/2017 Upcoming Reports/Events. March 9 March 31 September October 2-3 October October WASDE Grain Stocks Prospective Plantings Master Marketer, Uvalde-San Antonio area 10

11 Mark Welch, Texas A&M AgriLife Extension Economist 600 John Kimbrough Blvd, Suite 335 College Station, Texas Tel. (979) Fax. (979) The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas A&M AgriLife Extension Service. The author and Texas A&M AgriLife Extension Service assume no liability for the use of this newsletter. The Texas A&M AgriLife Extension Service provides equal access in its programs, activities, education and employment, without regard to race, color, sex, religion, national origin, disability, age, genetic information, veteran status, sexual orientation or gender identity. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating 11