Depending on which side of the fence your main commodity is growing on this year, you may not be as happy as your neighbor to see so much bull in row-crop's marketplace these days.
The most recent "Focus on Feedlots" report from Kansas State University Extension Beef Systems Specialist Justin Waggoner shows a continued steady climb in cost of gain at Kansas feedlots going back to last summer. Based on today's commodity price outlook reports, those costs are not likely going any lower in the near future.
Current feed inventory at those feedlots, as shown in the May closeout report, showed that, as of mid-June, current feed inventory had an average cost of $6.45 per bushel of corn ($6.08 to $7 per bushel range); and $170.92 per ton of ground alfalfa hay ($134.80 to $243.88 per ton range). Average cost of gain per hundredweight (cwt) stood at $98.82 for 7-weight steers, with final weights of 1,413; and $109.04 for 6-weight heifers with final weights of 1,280. The steers averaged 206 days on feed; heifers 193 days.
To look at the commodity-price piece of this trend, DTN Lead Analyst Todd Hultman shared an outlook for some key commodity crops, along with the July 12 release of new USDA numbers. Hultman's outlook leaves little room for declines in key commodity prices moving toward the end of the year.
CORN CASH PRICE FLOOR AT $4.50
Hultman expects cash corn prices to be in the low $5-per-bushel range, possibly higher if drought intensifies, reducing projected yields. Even with higher yields than expected, he does not see prices dropping below $4.50/bushel.
Hultman notes there are three risks he is watching that will be especially pivotal in this market. The first risk is weather, and a drought in the northwestern part of the Corn Belt Hultman describes as "stubborn" without much relief. He said, "This is a year of haves and have-nots when it comes to soil moisture and good crop conditions. And because supplies are tight, there's not a lot of room for adverse weather."
Hultman notes that even with a decent corn crop, the U.S. won't add more than 300 million bushels to ending stocks, which are already at their tightest levels in eight years globally at 1.08 billion bushels. That keeps ending stocks below 1.4 billion bushels after this year's crop is harvested, best-case scenario.
The second risk is the continued mystery around China's planned purchases. Last year, the country bought over 900 million bushels of corn, which Hultman says is one reason prices are so strong today. Will they buy the same amount in the new season?
"So far, USDA estimates they will have similar-sized purchases," said Hultman. "Their prices at home are over $10 per bushel, so they still need to buy feed grains. They seem to be in a situation where they are not able to produce an amount of corn needed domestically, so they are making efforts to ration corn demand and trying to boost production at the same time."
The third risk Hultman notes goes back to COVID-19, and today's variants, which he said seem to be getting a bit out of control, especially in some Asian countries.
"It appears there is still talk about restricting economic activity due to this," he said. "That continues to be a nagging concern even though the overall world economy is better this year than last."
SOYBEAN CASH PRICES STAY ABOVE $12
At publication time, USDA had average farm price for new-season soybeans at $13.70/bushel. Hultman said that if this works out to be true, it will be the highest price producers have seen for this commodity since 2012-13.
Assuming a yield of 50 bushels per acre (bpa) across an estimated 86.7 million projected harvested acres, the Hultman anticipates a very tight market. This points to cash prices averaging about $13.50/bushel on new-crop soybeans. Hultman said he would be shocked to see soy prices fall below the $12/bushel mark.
It will be key to watch weather during the month of August, as this is when soybean pods fill, making timely rains at this point in the season critical to good yields. So, while it has been dry in Northwest and Midwest production areas to date, timely rains could still set producers up for what might be better-than-expected fall harvests.
"Crop conditions at this time (early July) were rated 59% good to excellent by the USDA," Hultman added. "Over the past 12 years, we've only seen two times when it was worse, 2019 and 2012. So, this is the third-worst year so far. We'll have to see what the rest of the season brings."
China will again be a key player when it comes to where prices go for soybeans, with Hultman noting that from all available clues, it appears the country still has a very strong appetite for soy. Their hog herd has been rebuilt to pre-African Swine Fever levels. And buying activity in Brazil's market has sent a signal that the Chinese are looking for soy.
"Earlier this year, Brazil had a record 5 billion-bushel soybean crop," he noted. "That was huge, and China has been making large purchases since then. Today, Brazilian soy prices are close to U.S. prices, and it's early July. So, we know China is working through Brazil's surplus quickly, and in about a month, they will be turning to the U.S. for soybeans, which is earlier than usual."
WINTER WHEAT MARKER AT $5 BUSHEL
Given higher corn prices, more wheat may find its way into livestock feed rations. USDA is looking for season average farm prices of wheat at $6.60/bushel for the new 2021-22 season, based on 665 million bushels of ending wheat stocks. This is the lowest since 2013-14.
"As we look outside of North America to the world's major wheat regions, all are doing well. The wheat crop most at risk this year is the spring wheat in the northwestern Plains, where drought conditions remain serious. That will elevate spring wheat prices. It will be hard to see a scenario where hard red winter wheat drops below the $4.80/bushel to $5/bushel price this fall," said Hultman. He added it will also be hard to export wheat this year because the harvest has been good around much of the world.
"The U.S. wheat supply is estimated at its lowest level in eight years," he said. "So, we don't see much downside price risk in the year ahead."
COTTON PRICES HOLDING AROUND 75 CENTS PER POUND
Based on 3.3 million bales of ending U.S. cotton stocks for the 2021-22 season, USDA projected cotton prices at 75 cents per pound on average. Hultman points out that the ending stocks level for U.S. cotton is the lowest in five years.
"We are also seeing cotton prices benefit from strong demand, and acreage estimates have fallen to around 11.7 million acres. The original planting estimate was 12 million acres," said Hultman. "That smaller planting estimate could help nudge prices past that 75-cent mark, to 76 cents/pound."
December futures prices for cotton at publication time were 88 cents/pound, which Hultman said was overly optimistic given the crop rating is 52% good to excellent, which is better than last year's 43% at roughly the same time.
"I think we'll see cotton prices this fall with support at the 74-cent-per-pound market, possibly moving to the 78-cent-per-pound level. There is a bullish risk for stronger export demand than the USDA currently estimates, but I temper that with concerns over COVID issues during the next year."
For more DTN coverage on the most recent USDA numbers for commodities, go to:
Victoria Myers can be reached at firstname.lastname@example.org
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