USDA's take on domestic livestock feeding in the United States should be a breath of fresh air for sellers of all feed grains in Canada, including wheat, oats, barley, feed peas and of course corn.
While March corn futures have fallen from their $8.46 1/4 high in August to test the 50% retracement of the contract's May through August rally at $6.79 per bushel over the past two weeks, corn has rebounded 28 1/4 cents this week and has closed above the highs from the past two weeks. Weekly stochastic indicators show a potential bullish cross in over-sold territory, while futures spreads indicate a rapid strengthening. The nearby March/May spread moved from a carry to an inverted market just this week. One additional factor to watch is the U.S. cash basis for corn. Despite a sloppy export program, cash basis for corn has been a tight 4 cent/bushel discount, as seen in the DTN National Average Basis calculation.
Strong feed demand is seen in Friday's report from:
-- A 300 million bushel increase over December's projection for corn demand to 4.450 bb due to domestic feeding.
-- A 35 mb increase in U.S. feed wheat demand over December's estimate, to 350 mb, over two times the amount of wheat fed in 2011/12.
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-- A 5 mb increase in the feed use of barley, to 60 mb.
-- A 50 mb increase in the feed use of sorghum, to 125 mb.
- A 5 mb increase in the feed use of oats to 90 mb.
While discussing corn, USDA states that "higher domestic disappearance leaves the balance sheet historically tight and is expected to support continued strong and volatile prices well into summer, particularly in the domestic cash markets."
The implications of a strong feed market for our Canadian industry go on and on. There have been comments made that the downside for lentils on the prairies is currently supported by a floor in the 18-cent range driven by the feed market.
While corn lost almost $1 per bu from late November until the most recent lows, feed peas have gained almost the same amount over the same period of time, utilizing data supplied by Saskatchewan Agriculture. This in turn can raise the floor-price for higher value human consumption varieties. Feed prices are indicated in the $6.50/bu range.
Despite oat futures trading in a much similar pattern to corn, with a recent high reached on Dec. 7 of $4.02/bu and a decline of 73 1/2 cents to the Jan. 7 low of $3.28 1/2/bu on the March contract, feed oats on the prairies have also shown their resiliency, currently indicated at over $200 delivered central Saskatchewan, near fall highs.
Feed barley prices have backed off of earlier levels in the $290/mt range and are now sitting in the $275/mt range delivered southern Alberta. With ending stocks forecast to be tight at 1 million metric tons and producers having much more flexibility surrounding what they sell and when, including their other grains, watch for barley prices to strengthen as we move forward, by chance testing cash market highs again in the April/May/June period when stocks are traditionally difficult to source.
The feed situation may become increasingly volatile as we move toward spring, and watch for potential breaks in the U.S. Midwest drought.
Cliff Jamieson can be reached at email@example.com
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