Watch the Feed Usage Number for Corn

Last week, when USDA raised the sized of the U.S. corn crop, there was a collective gasp in farm country. Prices are already very low, and an even bigger crop wasn’t expected. All attention now has turned to how this mammoth supply will be used in hopes consumption can chew through the mountain of corn.

U.S. farmers are harvesting their largest corn crop on record at some 15.2 billion bushels. It’s the western corn belt that really came through this year with big yields. The November USDA Crop Production report shows that even in the last month those yields got bigger. Up 3 bushel to the acre in Nebraska and South Dakota. 4 bushels higher in Minnesota. And a 17 bushel to the acre increase in North Dakota that came about once farmers (the only real source for yields in that state) took a look at the yield monitors in their combines.

The increased yield for the corn crop creates a scenario says University of Illinois Agricultural Economist Todd Hubbs where the ending stocks to use ratio is 16.4 percent under current consumption projections. That’s a level, he notes, that has not been seen since the 2005/06 marketing year. And while the corn for export and ethanol numbers seem sound, the feed and residual number has Hubbs concerned.

Quote Summary - They’ve had the feed and residual use projection at 5.65 billion bushels for the few reports. It’s a big number. It is 10 percent up over last year and, with the increased livestock numbers we’ve seen, it sounds reasonable. However, when you consider the mitagating factors surround feed usage; the unseasonably warm fall; a large corn crush for ethanol which increases the availability of distillers grains; DDG’s that may not be shipped overseas because of China’s recent import restrictions; and you see lots of alternative sources for feed rather than corn. Even though there are strong livestock inventory numbers, the mitigating factors want to make you give feed a good look as we move through the marketing year.

Think of it this way. There are a lot of corn acres and lot ethanol plants west of the Mississippi River - Iowa, Nebraska, and Minnesota are three of the top five corn producing states in the nation. There are also a lot of wheat acres, and a lot of cattle, and a lot of hogs, and more than a few poultry operations. Those birds and animals eat a lot of feed, but the ranchers and farmers make decisions based on economics. Clearly it has been cheaper to leave cattle on pasture this warmer than average fall, and it may be cheaper to feed wheat and DDG’s rather than corn. We won’t really know the impact until the Grain Stocks report is released January 12 says Todd Hubbs.

Quote Summary - The grain stocks report is the only way to back out how much corn for feed is being used. We know how much corn is being crushed for ethanol. There is a pretty good figure on how much of it is being exported. The Grain Stocks let us back figure a calculation for feed usage over the first quarter of the marketing year. So, on January 12th of 2017 the report will come out giving us the December 1 stocks report. This will give us an indication of just how strong feed us is.

So, while a deserved focus has been placed on corn exports, foreign production, and corn used for ethanol, a major portion of each corn crop is fed to livestock. Given the large projected increase for feed and residual usage this marketing year, monitoring those projections will be really important to price discovery.

Trump | Now what for U.S. Corn Exports

Tom Sleight, CEO of the United States Grains Council discusses the future of U.S. grain exports under a Donald Trump administration.
 

Crop Insurance Payments - an interview with Gary Schnitkey

Harvest prices used to determine crop insurance payments for corn and soybean policies in the Midwest are based on Chicago Mercantile Exchange (CME Group) futures settlement prices during the month of October. The 2016 harvest price for corn is $3.49 per bushel. This is 10% lower than the $3.86 projected price set in February. The soybean harvest price is $9.75 per bushel. That’s 10% higher than the $8.85 projected price. For the most part it means crop insurance payments to farmers will be relatively low says University of Illinois Agricultural Economist Gary Schnitkey.

Assessing the Potential for Higher Corn Prices

The odds are against four dollar cash corn this year and next, at least for any extended period of time.

The monthly average cash price paid to farmers in the United States for their corn has been less than $4.00 a bushel for 27 consecutive months. It’s likely to stay that way well into 2017, too, says University of Illinois Agricultural Economist Darrel Good unless something changes, “Some combination of a reduction in corn supplies and increased consumption will be required in order for prices to move above $4.00 per bushel for an extended time.”

On the supply side, or how much corn is around, USDA’s next Crop Production report is due November 9th. It will contain a new forecast of the size of the 2016 U.S. corn crop. Previous history of yield forecast changes in November in years when the forecast declined in September and again in October as was the case this year, says Darrel Good, show very mixed results with 5 moving lower, 1 unchanged, and 4 of the ten getting bigger. The trade is leaning toward a smaller corn yield this time around. So, not a lot of supply side help expected from the USDA reports on this fall’s crop. That make the southern hemisphere pivotal.

Brazilian production declined from 3.35 billion bushels in 2015 to 2.64 billion bushels in 2016 due to late season drought. Early season USDA projections are for production in 2017 to rebound to 3.29 billion bushels. In addition, Argentina is expected to expand corn area due to reductions in export taxes.

It is too early in the South American growing season to assess yield potential, but production well below early projections would be required to push corn prices higher says Good in his Weekly Outlook on the Farm Doc Daily website. He also thinks a more likely source of a reduction in corn supply may be reduced corn acreage in the United States next year.

Darrel Good - Assuming a three million acre reduction in harvested acreage and consumption during the 2017–18 marketing year near the 14.525 billion bushels projected for this year, the 2017 average yield would need to be below 173 bushels in order for year-ending stocks to be reduced from the 2.32 billion bushels projected for the current year. Under the acreage and consumption assumptions made here, a yield near trend value of 169 bushels would result in year-ending stocks of about 1.99 billion bushels.

There are lot of supply side ifs in that statement. Maybe then demand for corn could be the key to higher prices. The good news here is that U.S. corn exports are up, but that’s based upon last year’s poor corn crop out of Brazil. It doesn’t appear feed usage will increase either, thinks Good, and while the ethanol grind has be increasing, USDA has already penciled in an extra 100 million bushels of usage.

It appears unlikely thinks Darrel Good that higher corn prices will be generated by a large reduction in the estimated size of the 2016 U.S. crop or stronger than projected demand for that corn. That leaves a smaller than expected South American crop or a much smaller U.S. crop in 2017 as the potential sources of higher prices. If South American production increases as projected, a large decline in U.S. acreage and/or a 2017 yield below trend value may be required to push the average corn price above $4.00 during the 2017–18 marketing year.

Illinois Water Conference | Reducing Nutrient Losses

Participants in the University of Illinois 2016 Water Quality Conference Reducing Nutrient Losses panel discuss ways in which farmers and landowners can manage water quality.

• Laura Christianson, Crop Sciences - University of Illinois
• Ruth Book, State Conservation Engineer - USDA NRCS
• Jason Solberg, Illinois Fertilizer & Chemical Association
• Debbie Fluegel, Trees Forever

Soybean Yields in Illinois

via FarmDocDaily
by Gary Schnitkey, Agricultural Economist - University of Illinois

In recent years, soybean yields in Illinois have been exceptional, leading to questions on whether technologies have caused a "jump" in soybean yields. While the 2016 state yield will be an outlier, it is too early to say that a new regime of soybean yields exists. Relative to corn yields, soybean yields must increase more to have the same relative yields as in the early 1970s.

Comparing Soybean Yields to Trend

State soybean yields for Illinois have been exceptional from 2014 through 2016. In 2014, Illinois' soybean yield was 56 bushels per acre. The 2014 yield was a record high, 4.5 bushels per acre higher than the next highest yield of 51.5 set in 2010. The 2015 state yield again was 56 bushel per acre. In 2016, a new record will be set, with state yield estimated at 62 bushels per acre in the October Crop Production report produced by the National Agricultural Statistical Service. A 2016 yield of 62 bushels per acre would be 6 bushels per acre higher than the previous highest yield set in 2014 and 2015.

Comparisons to trend further illustrate how high recent yields have been in Illinois (see Figure 1). Fitting a linear trend through soybean yields results in an increase of .48 bushels per year. The 2014 through 2016 yields are significantly above the trend: 5.1 bushels in 2013, 4.6 bushels per acre in 2015, and 10.1 bushels per acre in 2016. The 2016 yield is a statistical outlier. Only one other yield has been 10 bushels away from the 1972-2016 trend, that being in the 1988 drought year when the actual yield was 11.5 bushels below trend



Why are Soybean Yields High?

Recent high soybean yields then lead to the question of what is causing the high yields. Have growing conditions been abnormally good in the past three years, leading to the high yields? Or has technology changed such that a higher yield should be expected in the future? Perhaps genetics have improved, or farmers' use of fungicides and other inputs have been leading to higher yields.

This question - is it good weather or technology changes - is difficult to answer from just observing time series of data. Two contradictory thoughts. Recent yields have been high, and the 2016 yield is a statistical outlier, suggesting technology changes. On the other hand, historical jumps in yields or trends have rarely occurred in the last 50 years. For example, corn yields appeared to be increasing at a faster after 1995 than before 1995. Belief in an increasing yield trend decreased after the poorer yields of 2010, 2011, and 2012. The recent high soybean yields in recent years may simply be a signal of exceptional growing conditions.

Soybeans Compared to Corn Trends

While soybeans have had exceptional yielding years recently, soybeans relatively to corn yields have not been at historically high levels. Figure 2 shows soybean yields divided by corn yields. Higher levels indicate that soybean yields are higher relative to corn. In 2016, soybeans divided by corn yield is .31, which is not above average.



Over time, soybeans-to-corn yields have been trending downwards. An expected level of soybean-to-corn yields in 1972 was .32. The .31 value in 2016 is below the expectation in 1972. The Illinois state yield for 2016 is projected at 202 bushels per acre. For a .32 soybean-to-corn yield ratio to result in 2016, soybean yield would have to be 64.6 bushels, 2.6 bushels higher than currently projected.

Soybean yields have been declining relative to corn yields because of higher trends for corn. In Illinois, corn yields have been increasing by 1.8 bushels per year compared to .48 bushels per year for soybeans. Over time, the higher increase in corn yields causes lower soybean-to-corn yields

Summary

Soybean yields in Illinois have been exceptional in recent years, with yields being much higher than trend yields. It is too early to say that a permanent change has occurred, and history suggests permanent changes occur rarely.

Big Crop Strong Exports an interview with Todd Hubbs

It is likely the export markets along with South American production prospects will drive only periodic price increases for corn and soybeans says University of Illinois Agricultural Economist Todd Hubbs in this interview with Todd Gleason.

FarmDocDaily Source

Just in Time Parenting

visit Just in Time Parenting website
 

USDA October Reports

University of Illinois Agricultural Economist Darrel Good reviews the October 12, 2016 Crop Production and WASDE reports including his thoughts on how it changes off-farm storage decisions.

Sell Soybeans for Cash Needs

The United States Department of Agriculture has reported the size of this year’s soybean crop and for the second month in a row it has increased the size of what was already a record breaker. That trend is likely to continue.

USDA, in its October Crop Production report, raised the average national soybean yield by eight-tenths of a bushel. It now stands at 51.4 bushels to the acre and about 4.3 billion bushels strong. It is already a serious record breaker, but not likely big enough, yet, says University of Illinois Agricultural Economist Darrel Good.

Well, I think, taking all the evidence together, saying now that we got bigger in September, and we got bigger in October on soybeans, and the crop is already very big…I think would point to another small increase in the yield forecast in November and perhaps in January as well. So, maybe not by a lot, but I certainly wouldn’t expect the number to come down from what we are looking at right now. –Darrel Good

However, even in the face of a record crop, the price of soybeans has remained fairly strong. This tells Darrel Good farmers should be a little patient as they contemplate when to sell. It might be worth waiting to see how the South American crop unfolds. Although, the U of I number cruncher does have a few caveats.

If I had to choose to sell one or the other, I would still be a seller of soybeans. –Darrel Good

For reference USDA has established, this month, the expected mid-point national cash price received for soybeans by farmers from now until next fall at $9.05, with corn at $3.25 and wheat at $3.70.

You may read Darrel Good’s thoughts on the markets each Monday afternoon on the FarmDocDaily website.

Harrington Seed Destructor Testing

The Harrington Seed Destructor is being tested by the University of Illinois for field level efficacy to control herbicide resistant weeds.

Green Infrastructure & Stress an interview with Bill Sullivan

If you are looking for an easy way to release some of the stress in your life, you might think about taking a walk in a park or just buying some house plants.

Grain Farm Working Capital Nearly Exhausted

Four consecutive years of lower commodity prices has nearly exhausted the financial resources of U.S. grain farmers. Todd Gleason looks into the problem with an agricultural economist from the University of Illinois.

Too Early to Sell the 2017 Soybean Crop

There’s a nagging question farmers are wondering about as they harvest what is quite likely to be their best soybean crop ever. Is it so good, so plentiful, that it might be time to consider selling some of next year’s crop.

Let’s start with some plain facts. The price of soybeans from April through August was higher, on average, than it was in the prior seven months. This says Darrel Good is because the trade expected there to be a whole lot of soybeans leftover from last years harvest by the time right now arrived. Something like 450 million bushels. That didn’t happen. The South American crop failed and U.S. exports jumped by 250 million bushels. Like most of the previous years, all but one since 2008, this left fewer than 200 bushels in the bin from the previous season’s soybean crop. Here’s how Good, a University of Illinois Agricultural Economist, says that should all play out in the coming months.

With consumption during the 2016–17 marketing already projected to be record large, an increase in the average yield forecast (without an unexpected decline in the estimate of harvested acreage) would likely result in an increase in the current projection of year-ending stocks of 365 million bushels. Two additional factors point to the potential for additional weakness in soybean prices during the 2016–17 marketing year. -Darrel Good

First, and you can read this on the Farm Doc Daily website, USDA expects a modest increase in soybean acreage for harvest in South America next year. While an increase of only 1.5 percent is currently projected (mostly in Brazil), normal yield levels result in a projected 3.5 percent (220 million bushels) year-over-year increase in soybeans from the southern hemisphere. If that large crop materializes, the pace of U.S. exports would be expected to experience the normal sharp seasonal decline beginning in the spring of 2017. A second factor that could contribute to lower soybean prices, says Darrel Good, is an increase in soybean acreage in the U.S. next year.

While it is too early to form solid expectations about U.S. acreage, low prices of other commodities relative to soybeans would be expected to result in some switch away from those crops to soybeans. In particular, the large increase in corn acreage in 2016, prospects for relatively large year-ending corn inventories, and the relatively high cost of producing corn would be expected to result in fewer corn acres in 2017. Futures prices for the 2017 corn and wheat crops are higher than prices for the 2016 crop, but those prices are still low relative to prices for the 2017 soybean crop. The USDA’s Winter Wheat Seedings report released in the second week of January 2017 will provide the first indication of acreage response to current price levels. The size of the 2017 soybean crop will still largely hinge on the average yield. It will be interesting to observe if three consecutive years of above trend U.S. average soybean yields will alter early expectations for the average yield in 2017.

Here’s what Darrel Good thinks this all means at the moment. With so much production uncertainty over the next 10 months, a strong pace of Chinese buying, and the recent history of smaller than expected year-ending stocks, it is not completely surprising that the market is not yet reflecting the potential for a growing surplus of soybeans during the 2017–18 marketing year. The question for producers, he says, is whether or not current prices offer a pricing opportunity for a portion of the 2017 crop.

The answer is more likely to be yes for those who intend to increase soybean acreage in response to the current corn, wheat, and soybean price relationships.

Not Much Chance USDA Will Change Corn Yield or Acreage

Early corn yield reports have been good, but pretty variable. There are more than few concerns about a disease called diplodia, too. Some are beginning to piece these items together to make a case for USDA to lower its corn yield estimate. This isn’t very likely thinks University of Illinois Agricultural Economist Darrel Good.

“The fact is”, says Darrel Good, “if you look at the last 20 years of history, there is a strong tendency of the corn yield estimate to get higher in January compared to what it was in September. This has happened 70% of the time in the last 20 years, and almost 70% of the time in the last 40 years. So, those looking for a lower estimate are bucking history, but you can’t rule it out.”

Maybe not, but even if the USDA yield changes it won’t be by much thinks Darrel Good. Certainly not enough to really alter the supply/demand balance sheet changing it from a surplus to a tight supply situation. He doesn’t expect USDA to change the acreage numbers much either. This is because the difference between the Farm Service Agency reported acreage figures released in August and then again in September was very small.

This tells Darrel Good reporting has occurred in a very timely fashion. Therefore, he doesn’t look for an FSA increase in subsequent reports. Historically when the dust settles on corn, NASS acreage is three to three-and-a-half percent higher than FSA, says the U of I number cruncher, and about two percent higher on soybeans. This is right in the range where the FSA numbers set today.

Consequently, Darrel Good does not expect NASS to change its corn acreage estimate very much going forward. If this is the case, it leaves the U.S. with record corn yield and production figures.

Waiting for a Shift in U.S. Corn Acres

Farmers in the United States are about to harvest one of their best corn crops ever and prices are low. They may need to hang on to the crop for while if they want a better offer, and that could take a shift to soybeans next spring.


The United States Department of Agriculture judges this year’s corn crop to be a record breaker. If it all comes in as predicted in USDA’s September reports there will be none bigger, and the market believes it so far. The price of corn has dropped about a dollar a bushel since earlier in the summer. This price isn’t likely to change much thinks Darrel Good until some new information comes along in one of the USDA reports, and that might not be until next spring.

As long as we have that kind of carryover prospects, the market sees no reason to push prices higher to reduce consumption. - Darrel Good

The big response he’ll be looking for is in U.S. acreage next spring, says Good. The agricultural economist suggests the price of corn now, when compared to the price of soybeans, should result in some acreage shift from corn to soybeans next years. This could result in some relief on the supply side of the corn market.

This shift, if it comes, would be from farmers responding to market signals. Right now the price of soybeans compared to corn suggest farmers in the United States should seriously consider changing up next year’s crop mix, planting more soybeans. As for marketing this year’s corn crop, well, Darrel Good says it’s a waiting game for corn, and may very well be directly related to the acreage response.

There is some carry in the market. It is not huge. Prices remain fairly low. You’d say storage is a better option for corn, but you’ll have to store it at least through the first of the year, maybe into the spring of the year, before you could anticipate much of a rebound in spot prices. - Darrel Good

Darrel Good writes about the commodity markets each Monday. The articles are posted to the FarmDocDaily website.

Quick Ship Soybeans and Storing Corn

The rains falling across the Midwest are delaying harvest for the moment, but they may also bring with them a sales opportunity for farmers. That's because the amount of soybeans left in the nation is pretty small, and processors are in need. University of Illinois agricultural economist Darrel Good says, if farmers can get in and harvest, they might find some pretty good basis levels.

We are coming off a period in central Illinois when spot soybean prices were running well above November futures. Twenty to thirty cents above, but it has begun to erode. However, we are still looking at prices pretty close to option value. It says to me with big yields and that kind of price, well over $9.00, revenue looks pretty good by selling some soybeans at least, if not a majority of the soybeans right out of the field. -Darrel Good

The sooner the better and the higher the quick ship premium, although those are likely to disappear quickly thinks Darrel Good.

Store #corn, but you’ll need to hang on for a while says Darrel Good.https://t.co/gydUMuQa17 @uie_ag pic.twitter.com/4CeVV9RrGX

— Todd E. Gleason (@commodityweek) September 15, 2016

2016 County Cash Rents | an interview with Gary Schnitkey

The National Agricultural Statistical Service (NASS) - an agency of the U.S. Department of Agriculture - released average county cash rents for 2016 the second week of September. These county rents are used to imply average rents for different expected corn yields in the state of Illinois.

Bayer to Purchase Monsanto

Bayer and Monsanto today announced that they signed a definitive merger agreement under which Bayer will acquire Monsanto for $128 U.S. dollars per share in an all-cash transaction.

Bayer Ag Brands
Monsanto Brands

The combined agriculture business will have its global Seeds & Traits and North American commercial headquarters in St. Louis, Missouri, its global Crop Protection and overall Crop Science headquarters in Monheim, Germany, and an important presence in Durham, North Carolina, as well as many other locations throughout the U.S. and around the world. The Digital Farming activities for the combined business will be based in San Francisco, California.

Advancing Together is the company website dedicated to explaining the deal. Bayer employs 116,800 people around the planet. Monsanto employs more than 20,000 of which about 12,000 are based in the United States.




When the merger is complete, scheduled for sometime in 2017, the combined company will be nearly balanced with approximately half of its assets in the agricultural sector and the other half in healthcare.




The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement and receipt of required regulatory approvals. Closing is expected by the end of 2017.

* graphics and video courtesy Bayer

USDA Reports | September 12, 2016

USDA Crop Production and WASDE reports released 11am central Monday September 12, 2016. Visit our USDA Reports page for full details.


Corn production is forecast at 15.1 billion bushels, up 11 percent from last year but down less than one percent from the August forecast. Based on conditions as of September 1, yields are expected to average 174.4 bushels per acre, down 0.7 bushel from the August forecast but up 6 bushels from 2015. If realized, this will be the highest yield and production on record for the United States. Area harvested for grain is forecast at 86.6 million acres, unchanged from the August forecast, but up 7 percent from 2015.

Soybean production is forecast at a record 4.20 billion bushels, up 3 percent from August and up 7 percent from last year. Based on September 1 conditions, yields are expected to average a record 50.6 bushels per acre, up 1.7 bushels from last month and up 2.6 bushels from last year. Area for harvest in the United States is forecast at a record 83.0 million acres, unchanged from August but up 1 percent from 2015.

Selected States Yield

CORN
Aug    Sep     State
200.0  200.0  Illinois
187.0  185.0  Indiana
198.0  196.0  Iowa
184.0  184.0  Minnesota
187.0  184.0  Nebraska
145.0  151.0  Kansas
163.0  162.0  Ohio
147.0  142.0  South Dakota
135.0  135.0  North Dakota

SOYBEAN
Aug    Sep     State
 57.0   61.0    Illinois
 55.0   58.0    Indiana
 57.0   58.0    Iowa
 47.0   49.0    Minnesota
 59.0   59.0    Nebraska
 40.0   44.0    Kansas
 52.0   53.0    Ohio
 42.0   43.0    South Dakota
 33.0   35.0    North Dakota