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CME: Livestock Producers Pay Close Attention to Grain Markets

30 May 2019

US - Grain markets have been in a frenzy in recent days as market participants come to terms with the fact that a good portion of the corn crop has yet to be planted, according to Steiner Consulting Group, DLR Division, Inc.

The USDA Crop Progress report shows that, as of 28 May, only 58 percent of the corn crop in the 18 major crop producing states had been planted. Last year and in the past five years about 90 percent of the crop had been planted by this time.

The overall total, while quite low, does not tell the full story. In some states plantings are even further behind with limited prospects of dry days in the near term. Farmers in Illinois intended to plant 11.2 million acres of corn this spring, the second biggest state by intended acres.

As of last week, only 35 percent of those 11 million acres had been planted. South Dakota, with 6 million intended acres, had planted just 25 percent, Indiana with 5.5 million acres had planted 22 percent and Ohio with 3.5 million acres had planted only 22 percent.

December corn futures in mid May were trading at $3.76/bu. Currently December futures are running about 70 cents higher than those levels. Half of those gains has happened in the last three trading sessions.

Futures reaction has been rather slow despite reports of plantings running behind schedule, in part because participants have become somewhat complacent when it comes to the slow pace of plantings.

Advances in technology now allow farmers to cover a lot of ground in a short amount of time. But here we are at the end of May and some parts of the country have not planted even half of the corn they intended.

Will they go the prevent planting route? Will they forge ahead and try to find a window to plant in early June? Will more corn acres go into beans even as demand from China has collapsed? How much will the 16 billion aid package affect those decisions?

There is extreme uncertainty in the corn and soybean market right now and livestock producers are paying close attention. It was not very long ago when we were looking at the first USDA supply/demand estimates and considering the effect that ample corn/bean supplies would have on livestock and poultry production.

Now hog and cattle producers may have to pencil in higher feed costs in their budgets for 2019-20. How much higher remains to be seen. The last USDA S/D report pegged corn plantings at 92.8 million acres. Could we see planting drop to 91 million (-1.9 percent)?

With more acres planted after 30 May how big of a hit will yields take? Could we see yields drop to 168 bu/acre vs. trend 176 (4.5 percent). Some studies have shown losses of 1.1 bu./acre/day past 30 May. But that assumes normal weather.

Summer temps and the timing of high temp. days will be the final determinant. The assumptions above would result in a +1 billion bushel shortfall in corn production vs. current estimates. Even with reductions in feed, ethanol and export demand (due to higher prices), the stocks to US ratio could decline under 10 percent vs. 16.9 percent it is currently projected.

The last time stocks/use ratio for corn dropped below 10 percent was during the 2013- 14 marketing year. These are some of the calculations that market participants are doing but there is still a lot that is unknown at this time - acres planted, summer weather, etc.

For livestock producers and those that purchase livestock products the next two months will be very important. A short corn crop could increase the volatility, and risk, in a market that already has to contend with the fallout from the spread of ASF in Southeast Asia and the potential for a dramatic reduction in global protein supplies.


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