Dr. Jim Hilker | November 9, 2017
The October Crop Production Report once again confirmed the U.S. would harvest a massive corn crop. At this point it appears it will be the second-highest corn production and yield level in history, second only to last year’s records.
December corn futures have remained on the lower side of the same $3.45-$3.60 price range they have been in for the past two months as of mid-October.
On Oct. 12 at noon the USDA/NASS released the October Crop Production Report showing projected 2017 corn production at
14,280 million bushels. This was over 100 million bushels more than average trade expectations, and 96 million bushels more than the September survey indicated.
The increase came from projected higher yields as planted acres were lowered 400,000 acres based on a thorough review of all available data. And then projected harvested acres were lowered a like amount. The U.S. projected yield was put at 171.8 bu/acre, up 1.9 bu/ac from the September forecast.
But production is not the whole story, even for 2017-18 supply. Remember the discussion from the last issue? The Sept. 1 stocks report showed we would carry in 55 million fewer bushels of corn than expected.
And then we have the demand/use side of the story. The USDA/NASS released its updated supply/demand estimates on Oct. 12 as well. The USDA increased expected 2017-18 use by 35 million bushels by increasing projected feed and residual use by 25 million bushels and other FSI uses by 10 million bushels.
Projected 2017-18 ending stocks only increased by 5 million bushels, basically a wash. And December futures, after hitting new contract lows the morning before the report, actually rallied a few cents. See Table 1 for all the U.S. numbers.
There were substantial changes in the October numbers reported for Michigan. The projected yield was lowered by a bushel to 168 bu/ac, which would be a record, smashing the previous record of 162 set in 2015.
But as we know, record yields were are not statewide, and the variance from normal varied through the state. The big change was projected harvested acres was lowered by 170,000 acres! How much of this was a lowering of planted acres, an increase in acres harvested for silage, or an increase in abandonment is unclear. But remember, yield is calculated only on acres harvested for grain. So if more poorer yielding fields were harvested for silage or not harvested, the average projected yield for harvested for grain would come out higher.
So, does your price forecast like futures more today or later, as I ask in class? Do you expect futures to go up or down? If you are putting corn in storage unpriced or using a basis contract, you are predicting futures will go up. Do you like the basis better today or later? This tells us whether we should be paying for storage.
It appears to me that for most of Michigan on-farm storage will pay, but not commercial storage. But you need to run the numbers for your area.
On Oct. 12, the USDA/WASDE released the updated supply/demand estimates for wheat. There were no production updates as the Small Grains Summary discussed in the last issue were the final 2017 numbers until possible updates in the January final 2017 Production Report.
The news was near what we expected after the stocks report discussed in the last issue.
Based on the review of the Sept. 1 stocks report and other information, wheat beginning stocks (which would have been the June 1 wheat stocks), were revised down three million bushels to 1,181 million. This, of course, lowered projected supply a like amount. Granted, this number in the scheme of things is minimal, but any less is better given wheat prices.
The other big change ‑ and the direction of this change was expected ‑ was 2017-18 wheat-for-feed use was lowered from 150 million bushels to 120 million bushels.
The Sept. 1 wheat stocks being higher than expected indicted feed use to date was lower than expected, and with cheap corn prices, the same is expected for the rest of the marketing year.
The net result of these changes was an increase of 27 million bushels in the 2017-18 projected ending stocks. Not what we need for wheat prices. The good news is that 960 million bushels of ending stocks is better than the 1,181 million bushels left over last year. See all the updated projections in Table 1.
The Oct. 12 USDA Crop Report was fairly net neutral, but the USDA Supply/Demand update the market appeared to feel was positive, even though the information it was based on was already known. November futures jumped almost 27 cents after the report, and 8 more cents the next day, but have dropped off 17 cents the past two days as I write this article.
Projected soybean production was near average trade expectations, and the same as the September projection, 4,431 million bushels. However, how we they arrived at the same projection showed some significant changes.
The projected yield of 49.5 bu/ac was down 4/10s of a bushel. But with more information the USDA raised planted acres 700,000, and projected harvested acres 800,000 from the June Acreage Report. The increase in acres and the decrease in projected yield just happened to net out, and projected production was left unchanged.
On the use side, the USDA/WADSE made no changes. However, the 2017-18 ending stocks projection was lowered 45 million bushels, very positive, but this was based completely on beginning stocks being lowered a like amount, which we already knew. See Table 3 for all the updates.
Michigan numbers were adjusted as well. Projected harvested acres were dropped 10,000 acres to 2,280,000 acres. Projected yields were increased a bushel to 49 bu/ac, down 1.5 bu/ac from last year’s record yield, but still tied for the second-highest on record. Projected Michigan production is 111.72 million bushels, a record, and over six million more bushels than last year’s record soybean crop.
Check out the Oct. 1 Cattle on Feed Report released Oct. 20 at 3 p.m. EST. The average trade expectation was the total on feed to be up 4.7 percent. Placed-on-feed in September was expected to be up 7.5 percent, but that average came from a very wide range, from up 3.4 percent to up 16 percent, so a bit of a wild card.
The trade was expecting marketing in September to be up about 2.4 percent. What did the report show with respect to heifers-on-feed and placed-on-feed in September? What might (if anything) this tell us about what cow calf producers are thinking about replacements?
Cattle futures for the most part have continued their uptrend though mid-October. Has that changed? If they have continued the uptrend or stabilized, consider checking out your pricing opportunities. The basis for colored cattle in the 5-area reporting region has appeared to come back to more normal levels after being positive for some time. The Holstein steer basis continues to be terrible. A sharp drop after a somewhat sudden closure of significant Holstein slaughter capacity is one thing, the market not making some adjustment after close to a year is a bigger problem. We haven’t gotten to the bottom as of yet.
No hogs this issue.