US - The US livestock, poultry and dairy industries have been blessed (again) with a record-setting corn harvest, writes the Steiner Consulting Group.
The harvest in late 2016 totaled 15.1 billion bushels, up from 13.6 billion bushels in 2015 and 14.2 billion bushels in 2014. As prospects for the 2016 harvest unfolded, corn prices declined sharply from June through August, bottoming out around Labor Day. Prices moved higher in the ensuing two months as sales in the export channels and purchases by domestic ethanol producers responded to the lower prices. So far in 2017, the nearby corn futures price has ranged from $3.55-$3.70, with an average price that is close to the same as last year’s January-March 2016 March futures average price.
The middle graph below shows the relationship between the nearby corn futures prices during the January-March interval for 2010 to 2017 relative to available corn inventories on 1 December and flows of corn to exports and usage for food and industrial purposes (e.g. ethanol). The ratio of usage to 1 December inventory this year is expected to be 17.5 per cent, compared to 17.7 per cent last year and 17.1 per cent in 2010. In 2010, the nearby corn futures price averaged $3.71 per bushel and in 2016 the average price was $3.63.
In 2015, the usage to inventory ratio was 18.1 per cent and prices averaged $3.85, which gives an indication of the price sensitivity to a one per cent change in the usage-to-inventory ratio.
Although the usage-to-inventory ratio seems to be static in recent years, the numbers that go into the ratio have not been.
December 1 corn inventories were up one billion bushels from a year earlier, up 10 per cent. Countering this are exports this quarter (Dec 2016-Feb 2017) that are on course to be up 34 per cent from four quarters earlier.
Food and industrial corn usage during the September-November 2016 quarter was up 54 million bushels from a year earlier and a similar increase for the current quarter allows for the 17 per cent usage-toinventory ratio.
The other piece of the puzzle for pricing feed is the cash basis for corn. Currently, local market prices for corn (for instance, Omaha) are below a year ago by about 3 per cent while the nearby futures price is close to unchanged. This condition is a product of livestock and poultry production levels that are not up by as much as the 10 per cent increase in corn inventories and prices for alternative feeds (wheat and sorghum) that are cheaper than a year ago.
In the case of cattle feedlots, inventories by the latest measure were down 1 per cent from a year ago, while US hog inventories are up 4 per cent. Currently, chicken hatchery output is up 1 per cent from a year ago. All of this suggests that feed costs for meat production in this country should not change much for the next few months.
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