Will Grain Consumption Boost Prices?
With the start of the new marketing year only a week away, the process of monitoring corn consumption and corn consumption prospects in the three major categories of feed, ethanol, and exports is underway. Not much is yet known about consumption prospects, but we start what will be an ongoing process of updating those expectations.
In the case of feed and residual use of corn, the USDA's quarterly Grain Stocks reports are the only source of data on actual consumption. The September 1, 2014, corn stocks estimate to be released on September 30 will allow the calculation of the magnitude of feed and residual use of corn for the final quarter of the 2013-14 marketing year and will provide some guidance for potential use during the year ahead. Expectations of feed use for the year will be derived primarily from weekly, monthly, and quarterly USDA reports of livestock and poultry inventories. Feed use of corn will not receive much support from the beef sector. The liquidation of the cow herd and the smaller calf crops of the past few years means there are fewer cattle available for feeding, and that deficit will continue for an extended period. The USDA reported that for feedlots with capacity of 1,000 head or more, there were 2% fewer cattle on feed as of August 1 this year than on August 1 last year; 7% fewer cattle were placed on feed during July 2014 than during July 2013.
The poultry and dairy sectors, however, appear to be experiencing some very modest expansion. The USDA reported that the number of broiler chicks placed for meat production during the two weeks ended August 16 was up 2% and 1%, respectively, compared to placements of a year earlier. Two weeks do not constitute a trend, so that placements will continue to be followed closely to determine if expansion is actually underway. The average number of layers has been running 1% to 2% above those of a year ago each month this year. The USDA also reported that milk cow numbers in 23 selected states were up about 1% in July.
The most uncertainty about livestock production comes from the hog sector. The USDA reported that the June 1 inventory of market hogs was 5% smaller than the inventory of a year earlier, but producers expected to increase the number of sows farrowed by 4% in the June-September quarter. Production prospects continue to be clouded by the ongoing impact of the PED virus on the number of pigs actually weaned. The USDA's monthly Livestock Slaughter report showed a 7% year-over-year decline in hog slaughter in July. That decline was partially offset by a 5% increase in average slaughter weight. The USDA's Hogs and Pigs report to be released on September 26 will provide additional information about pork production prospects during the 2014-15 corn marketing year. Since feed consumption of corn includes an unknown and sometimes surprising residual component, only the quarterly stocks estimates will provide a measure of actual disappearance.
It now appears that domestic ethanol production during the 2013-14 corn marketing year will reach a record 14.15 billion gallons, about 2.5% more than produced in 2011-12 and about 10% more than produced in 2012-13. Corn consumed for ethanol production during the marketing year just ending will be near 5.13 billion bushels. As indicated two weeks ago, ethanol production and corn consumption during the year ahead should continue to be supported at a high level, with the strength of exports likely to determine whether expansion continues. Export data are revealed monthly, with a lag of about six weeks.