Fundamentally Speaking

U.S. Corn Feed Use

The current rally in corn prices that has lifted futures close to 80 cents per bushel, before this week’s slight setback, started back on January 10 with the USDA posting a much lower than expected December 1st quarterly stocks figure.

Though the final 2013 U.S. corn production was 141 million bushels less than the average trade guess, the stocks number was 364 million bushels below the pre-report consensus figure implying 2013-14 feed demand 223 million bushels better.

At that time, many thought that the upcoming March 1 stocks report, to be released on the 31st would find back some of these bushels with many doubting that feed utilization is as strong as the December 1 stocks number implied.

This graphic shows the Sep-Nov feed usage as a percent of the USDA January WASDE feed estimate, Dec-Feb feed use as a percent of the April WASDE feed projection, and finally first half feed use (Sep-Mar) as a percent of the April WASDE feed estimate.

Since the advent of the high priced corn era that we estimate to have started in 2007, the quarterly corn stocks reports have been the most volatile series that the USDA releases with the actual numbers often varying widely from trade estimates.

One big concern is that it is increasingly difficult to determine exactly how much corn is being consumed by the nation’s livestock herds and poultry flocks.

This chart shows that both first quarter (Sep-Nov) and first half (Sep-Mar) feed use has increased as a percent of the total projection over the past number of years.

This year’s Sep-Nov feed figure of 2.426 billion bushels is the highest ever and 17% above the year ago figure and represents 45.8% of the January 2014 WASDE feed estimate of 5.30 billion bushels.

This is the second highest percent ever next to the 50.2% number the year prior. First half feed use as a percent of the total year figure has increased each year for the past four and at this rate it could be 75% of the 5.30 billion figure for this season.

If that is the case, then Dec-Feb feed use should come in at 1.549 billion bushels, 43% above last year. It will be interesting to see what figure the USDA releases, but evidence suggests however that corn feed usage may be as brisk as forecast.

Even with lowest beef cattle herd since 1951 and hog numbers lowered by the PEDv disease, prices of those commodities along with milk are record high auguring for high corn feeding rates.

Brutal winter conditions in much of the main U.S. feeding areas probably resulted in higher corn inclusion rates in the feed rations for at least maintenance purposes while corn prices relative to other competing ingredients such as wheat, DDG, and corn gluten feed is very cheap.



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Freeport IL
3/25/2014 | 9:51 AM CDT
What is the likelihood, from the fundamental point of view, the CME's Dec 2015 corn price (two years out) will be under the current level of $4.85 per bushel at the expiration of the contract? Many assumptions are needed to make this WAG (wild ass guess). The first assumption is ending corn stocks of 1.45 billion bushel will hold the Dec 2015 contract at expiration to a $4.85 price. (The March 2014 corn contract showed the error in that assumption. The contract price has been $0.40 lower to $0.05 higher from that $4.85 level with about same projected ending position.) Corn acres planted for both years needs to be assumed. Ninety two (92) million acres was used for 2014-15 and a sliding level from 88 to 97 million acres was used for 2015-16 depending on 2014-15 ending balance. The lower the 2014-15 ending balance becomes the higher 2015-16 planted acres are assumed. A relationship between planted and harvested acres needs to be established. Corn use for 2014-15 and 2015-16 needs to be assumed. The higher the level of use that is inputted the greater the chance of higher prices. A level of 13.5 billion bushels for 2014-15 and 13.6 billion bushels for 2015-16 was used. A forty year detrended US corn yields is assumed to represent the potential corn yields for both years. The highest chance (as the level of inputted 2014-15 production changes, the 2015-16 projections change) of CME's Dec 2015 contract closing out above $4.85, with these assumptions, is less than 20% (1 in 5). That does not mean prices will not be higher between now and December 2015. In fact there appears to be about a 35% chance of December 2014 closing above this level. Frayne Olson's, North Dakota State University agricultural economist, advice maybe wise given these projections. He is quoted as saying; "Producers need to start thinking about marketing more than one crop year during price spikes." If the above calculations and assumption are close to reality, the greater than 80% (4 in 5) chance of the Dec 2015 CME contract closing out below $4.85 might be additional motivation to move to Olson way of thinking. Those following his advise will want to be mindful of input cost. Freeport, IL
Jason Billenstein
3/18/2014 | 3:35 PM CDT
Next year's carryover could go to 3b if we have a record crop this year it would be about the same stocks to use ratio as twenty years ago and $3 would be about the same price in today's dollars.
Jason Billenstein
3/18/2014 | 3:26 PM CDT
We feed a lot of hogs on our operation all in temperature controlled barns as most are today and this winters cold hadno iimpact on feed efficiency. Also, due to much improved genetics we can raise our hogs to 300lbs with less corn than it took to get them to 250 twenty years ago. And they maintain the same leanness whether we market them at 300 or 250. I agree that cattle take more feed in cold weather, but that's offset by fewer animals. If corn feed increases a more realistic 10% ending stocks easily go to 2b.
Roger Cooper
3/17/2014 | 9:22 AM CDT
Corn end stocks have only been above 2B twice in the past 20+ years! Your 3B number should take corn to the lowest price in over 20 years! It was also the coldest winter on record in lots of places! Live animals needed more energy to survive that!
Jason Billenstein
3/16/2014 | 9:15 AM CDT
Strong first quarter corn feed use was just refilling of an empty pipeline from 2012 drought, not actual consumption. No way corn feed use increases 22 percent with cattle and hog numbers this low and an increase in ddgs production. Adjustments will be made later and corn for feed will be cut sharply with this years ending stocks pushed above 2 billion bu. and $3.50 corn by summer. With a good corn crop this year next years ending stocks will rise above 3 billion and $3.00 corn
Freeport IL
3/14/2014 | 10:26 AM CDT
USDA's feed and residual use of corn has seemed doable for all the reasons noted in this post. Even after Purdue projected a 3% drop in the number of hogs going to market because of PED, it seemed heavier hogs could eat the feed left by fewer numbers. That may have changed with some folks talking about a 13% drop in the number of head going to market this summer. It seems unlikely that drop in the number of head going to market can be made up by heavier weights because of the loss in carcass quality - to much fat. (There is also an issue of large hogs dragging on the floor when placed on the rail in some slaughter plants.) We might be loosing over 10 million bushels a month from PED even with heavier weights if the level of PED damage is as advertised. Freeport, IL