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CME: Corn, Soybean Markets Trending Higher Since Labour Day

13 December 2018

US - Corn and soybean markets have been trending higher since Labour Day, reports Steiner Consulting Group, DLR Division, Inc.

This is a result of traders balancing out the effects of bountiful harvests and demand prospects clouded by uncertainties tied to world economic growth and geo-political strains.

Rising corn prices have had an impact on feeder cattle prices relative to fat cattle prices, a situation highlighted in a Daily Livestock Report (DLR) of 30 November.

Conceptually, feeder cattle prices reflect a demand derived from the value of fat cattle less the cost to get the feeder cattle into a marketable condition for the fat cattle market. Feed (e.g. corn) constitutes an important cost factor.

The graph below shows a decline in the feeder-fat price spread that has been steeper than in recent years in the last couple months. That situation has accelerated in December.

Nearby futures corn prices bottomed out this July and moved up about 5 percent through November. Over the time frame of 2010-2018, the years when corn prices hit their lows during the July-September quarter were 2014, 2016 and this year.

Both 2014 and 2016 were years when corn production records were set for the US This year, corn production did not set a record but average yields per acre were unprecedented with a decline in planted area.

In 2014, corn prices increased close to 20 percent from the low of the summer quarter to the end of the year and in 2016 the increase was 7 percent.

It is interesting that the increase in corn prices have been less this year and yet the weakness in feeder cattle prices is greater.

A difference between those other two years and this year is that this year’s calf crop will be up close to 4 percent from 2016 and 8-9 percent greater than 2014.

The low in corn prices this summer seemed to spur buying interest from overseas markets, which probably underpins the price strength in recent months.

Corn export inspections so far this crop year (beginning 1 September) are up 75 percent from a year earlier.

The favorable crop development of the summer probably also encourage some deferral of buying from the summer until after harvest based on the expectations of lower prices, thereby weighing on summer quarter corn prices.

Meanwhile, corn used for industrial purposes (excluding livestock and poultry feeding) has been down by a fraction of a percent from a year ago during September and October.

USDA-World Agriculture Outlook Board released their monthly World Agriculture Supply and Demand Estimates on Tuesday. The US corn market forecast pegged exports this crop year up less than 1 percent from last year, implying the surging corn shipments so far this year will not continue. '

Food, seed and industrial usage of corn this crop year is forecast to be up slightly, similar to exports and in line with early crop year usage.

The mid-point of the price forecast for the crop year is $3.60, and the current Omaha corn price is within a few pennies of that price, implying that additional price strength in 2019 may not amount to much.

Corn prices in the years following record harvests showed modest changes in the January-March term. Similar corn price direction in 2019 could provide some support for the feeder-fat cattle price spread stabilizing in the $20-$30 premium range, similar to early 2018. 2.50

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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