Corn, Hay, Wheat & Cattle Outlook Stephen R. Koontz Associate professor & extension economist Department of Agricultural & Resource Economics Colorado State University Stephen.Koontz@ColoState.Edu http://dare.agsci.colostate.edu/skoontz October, 1
April Cumulative Rainfall May Cumulative Rainfall June Cumulative Rainfall July Cumulative Rainfall 2
August Cumulative Rainfall Daily Harvest Corn Contract Outline Weekly S&P 500 Index Contract Economic Outlook Corn & Forage Cattle & Beef Inputs & Land Values Domestic Economy, Trade, & Demand Short term & Long term Price Outlook Management Strategies 3
Daily Crude Oil Futures Contract Price Commodity Market Outlook Summary Corn Needs two enormous crops. Hay Impacted by drought and corn. Cattle Current demand & long term supply. Oilseeds Depends on acres, exports to China & South American weather. Wheat Reduced world supplies & drought. Dairy Strong liquidation & coming volatility. Inputs Modest increases except land. 4
Corn Outlook Short term & Long term Price Outlook Market peaked & will soften from now to spring. Strong but weakening basis. Very poor moisture conditions for next year. Acreage & other issues for next year. Management Strategies Hand to mouth purchases. Aggressive sales. DEC12 $7.25 MAR13 $7.00 DEC13 $6.00 5
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Weekly Corn Contract The trading range for corn was $3.50-$6.00/bu. Except $8.00 $5.00 7
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DEC Corn Contract The $7.90/bu average farm price is at top of my forecasted range based on DEC Corn @ $7.37/bu. Market peaked? Yes, maybe. 10
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DEC 2013 Corn Contract DEC 2014 Corn Contract Forecast $5.50-6.50/bu Forecast $5.00/bu Corn Outlook A three year drought market. Moisture conditions are not good for next crop. Acreage response to this year? Hand to mouth purchases and aggressive sales. Structural change for livestock? Price outlook $5.00 $8.50/bu. until two big crops. 13/14 @ $6.00/bu. 12
U S ALL HAY SUPPLY & DISAPPEARANCE Crop Year U S ALL HAY STOCKS May 1 (Beginning of Crop Year) Mil. Tons Mil. Tons 190 30 180 170 160 Hay Supply 25 20 150 140 130 120 Disap. 15 10 110 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 5 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 G-NP-20 G-NP-21 08/10/12 08/10/12 Data Source: USDA-NASS, Compiled & Forecasts by LMIC Data Source: USDA-NASS, Compiled & Forecasts by LMIC 13
Mil. Tons 120 110 100 90 80 70 U S ALL HAY STOCKS December 1 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Data Source: USDA-NASS, Compiled & Forecasts by LMIC G-NP-22 08/10/12 50% -34% -2% 417% Data Source: USDA-NASS PERCENT CHANGE MAY 1 HAY STOCKS (-) 150% 143% -13% 19% 10% -49% 20% U.S. hay stocks down >10%. 36% 30% -20% -62% -35% -58% 11% -18% 20% -14% -18% 32% -21% -6% -27% 50% 124% -23% -3% -4% 46% -11% -27% 83% -10% 44% -36% -7% 52% VT -6% NH 117% MA 50% RI 0% CT 0% NJ -29% DE 33% MD 23% -100% to -18% -18% to 2% 2% to 44% 44% to 517% 5/10/ ALL HAY ACRES (1000 Acres) PERCENT CHANGE ALL HAY ACRES (-2010) 780-7% 1030 450 1390 1350 285 760 2700 1120 1620 280 2480 1830 1600 3550 2480 1140 540 2400 3750 2500 1400 3700 430 720 1340 1000 1450 1120 670 640 1370 2310 1880 775 300 590 800 260 132 VT 175 NH 53 MA 74 RI 9 CT 60 NJ 105 DE 15 MD 220 0 to 280 280 to 760 760 to 1350 1350 to 2400 2400 to 3751-5% -1% -8% -6% -4% -6% 9% 1% -11% -10% U.S. hay acres down >5%. -3% -1% -8% -29% -6% -22% -4% -4% -3% 0% -5% -3% 1% -10% 0% 3% 3% -2% -9% -4% -10% -5% -4% 3% -17% -9% 3% -19% -4% -100% to -9% -9% to -5% -5% to -3% -3% to 2% 2% to 14% VT -10% NH -5% MA -4% RI 13% CT 2% NJ 0% DE 0% MD 2% Data Source: USDA-NASS 5/10/ Data Source: USDA-NASS 5/10/ 14
Percent 65 60 55 50 45 40 35 30 US RANGE AND PASTURE CONDITION Percent Poor and Very Poor, Weekly 2006-010 Percent 75 65 55 45 35 WESTERN REGION RANGE AND PASTURE CONDITION Percent Poor and Very Poor, Weekly 2006-010 25 20 25 15 May Jul Sep 15 May Jul Sep G-NP-30 G-NP-31 Data Source: USDA-NASS, Compiled & Analysis by LMIC Data Source: USDA-NASS, Compiled & Analysis by LMIC Percent 90 GREAT PLAINS REGION RANGE AND PASTURE CONDITION Percent Poor and Very Poor, Weekly Percent 100 SOUTHERN PLAINS REGION RANGE AND PASTURE CONDITION Percent Poor and Very Poor, Weekly 80 90 70 60 50 40 30 2006-010 80 70 60 50 40 30 2006-010 20 20 10 May Jul Sep 10 May Jul Sep G-NP-32 G-NP-33 Data Source: USDA-NASS, Compiled & Analysis by LMIC Data Source: USDA-NASS, Compiled & Analysis by LMIC 15
Percent 80 CORNBELT REGION RANGE AND PASTURE CONDITION Percent Poor and Very Poor, Weekly Percent 45 SOUTHEAST REGION RANGE AND PASTURE CONDITION Percent Poor and Very Poor, Weekly 70 40 60 50 40 2006-010 35 30 25 2006-010 30 20 20 15 10 10 0 May Jul Sep 5 May Jul Sep G-NP-34 G-NP-36 Data Source: USDA-NASS, Compiled & Analysis by LMIC Data Source: USDA-NASS, Compiled & Analysis by LMIC GL_GR310 Forage Outlook Hay price to follow corn. Anticipated weaker hay price through the year but Strong demand from beef price outlook. Little beef herd liquidation. Weak demand from dairy. Winter will bring some very bad stories $175/T bad hay will be a good buy. 16
Weekly KC Wheat Contract $ Per Bu. 10.00 DODGE CITY WINTER WHEAT PRICES Weekly 9.00 8.00 2006-010 7.00 6.00 5.00 4.00 JAN APR JUL OCT Data Source: USDA-AMS G-P-03 10/04/12 17
30-Day Cumulative Rainfall 18
JUL 2013 KC Wheat Contract Forecast $7.00-7.99/bu 19
JUL 2013 Wheat Contract Wheat Outlook Continued large U.S. stocks. Uncertainty about Asian wheat crop and reduction in world stocks. Strong world demand in the short term. Strong prices and good basis. Forecasts JUL 2013 @ $7.25 with range $6 9/bu. Weekly Live Cattle Contract Monthly Live Cattle Contract The top is not in this market yet trading range of $150-130/cwt. $130 20
Weekly Feeder Cattle Contract Monthly Feeder Cattle Contract The top is not in this market yet trading range of $175-135/cwt. $160 Cattle Outlook Fed cattle market is strong (than you think): International demand and trade are the reason. Domestic demand is unique. Corn & feeders? Feeder cattle and calf prices will be strong for the foreseeable future: Continued beef cow liquidation. But evidence of herd rebuilding. $ Per Cwt 145 135 125 115 105 95 85 CHOICE STEER PRICE vs BREAKEVEN Cattle Feeding, S. Plains, Monthly 75 2004 2005 2006 2007 2008 2009 2010 2013 Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC Latest Data: September C-P-21 10/01/12 Steer Price Breakeven Projected Breakeven 21
$ Per Head 210 LIVE TO CUTOUT BEEF PRICE SPREAD Monthly Index Value 120 RETAIL ALL FRESH BEEF DEMAND INDEX Second Quarter, Using CPI 1990=100 190 170 2006-10 100 100 96 90 91 90 83 84 86 80 83 80 75 77 77 79 84 84 80 76 73 74 75 78 150 80 130 60 110 40 90 20 70 JAN MAR MAY JUL SEP NOV 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Data Source: USDA-AMS & USDA-ERS, Compiled & Analysis by LMIC C-P-02 10/01/12 Data Source: Bureau of Labor Statistics, USDA-ERS, Compiled & Analysis by LMIC Index Value 120 RETAIL ALL FRESH BEEF DEMAND INDEX Third Quarter, Using CPI 1990=100 $ Per Cwt. 850 WHOLESALE BEEF LOIN STRIP PRICES Boneless 0x1, Weekly 100 80 60 100 99 91 92 89 86 84 82 82 83 85 87 83 83 75 73 75 78 78 74 75 76 800 750 700 650 600 550 2006-10 40 500 20 450 400 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 350 JAN APR JUL OCT Data Source: Bureau of Labor Statistics, USDA-ERS, Compiled & Analysis by LMIC Data Source: USDA-AMS 22
$ Per Cwt. 850 800 750 700 650 600 550 500 450 JAN WHOLESALE BEEF RIBEYE PRICES Boneless, Light, Weekly APR JUL OCT 2006-10 $ Per Cwt. 1100 1050 1000 950 900 850 800 750 700 JAN WHOLESALE BEEF FULL TENDER PRICES Musl-On, 5 Pounds and Up, Weekly APR JUL OCT 2006-10 M-P-21 M-P-23 Data Source: USDA-AMS Data Source: USDA-AMS WHOLESALE BEEF CHUCK PRICES Boneless 2 Piece, Weekly WHOLESALE BEEF BOTTOM ROUND PRICES 18-33 Pounds, Weekly $ Per Cwt. 245 225 205 185 165 145 125 JAN APR JUL OCT 2006-10 $ Per Cwt. 230 220 210 200 190 180 170 160 150 140 130 JAN APR JUL OCT 2006-10 M-P-22 Data Source: USDA-AMS Data Source: USDA-AMS 23
$ Per Cwt. 240 220 200 WHOLESALE BONELESS BEEF PRICES Fresh, 90% Lean, Weekly 2006-10 $ Per Cwt. 130 120 110 100 WHOLESALE BONELESS BEEF PRICES Fresh, 50% Lean, Weekly 2006-10 180 160 90 80 70 140 60 50 120 JAN APR JUL OCT 40 JAN APR JUL OCT M-P-24 M-P-25 Data Source: USDA-AMS Data Source: USDA-AMS Why the focus on demand? Strength of domestic & international demand is the cause of strong cattle prices. Two years of drought impacting supplies & market dynamics. It s not all demand but it s pretty close. 1000 MT 7 6 5 4 3 2 U.S. EXPORTS OF BEEF MUSCLE CUTS Weekly Canada Japan Mexico Korean Rep. What happens with herd expansion & when corn returns to below $5/bu.? 1 0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 10/01/12 Data Source: USDA-FAS 24
1000 MT 29 24 19 14 9 TOTAL U.S. EXPORTS OF BEEF MUSCLE CUTS Weekly 4 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Bil. $ 8 7 6 5 4 3 2 1 0 U S BEEF INDUSTRY EXPORT VALUES Annual Extent of the world-wide recession & financial crisis. 1985 1988 1991 1994 1997 2000 2003 2006 2009 Who wants to forecast this growth? Tallow & Greases Variety Meats Hides & Skins Beef & Veal Live Cattle 10/12/12 I-N-70 08/09/12 Data Source: USDA-FAS Data Source: USDA-FAS, Compiled & Analysis by LMIC U S BEEF INDUSTRY IMPORT VALUES Annual U S BEEF INDUSTRY NET EXPORT VALUES Annual Bil. $ 6 5 4 3 2 1 0 1985 1988 1991 1994 1997 2000 2003 2006 2009 Tallow & Greases Variety Meats Hides & Skins Beef & Veal Live Cattle Bil. $ 4 3 2 1 0-1 -2-3 1985 1988 1991 1994 1997 2000 2003 2006 2009 Live Cattle Beef & Veal Hides & Skins Tallow, Grease & Var Meat Total I-N-71 05/02/12 I-N-72 08/10/12 Data Source: USDA-FAS, Compiled & Analysis by LMIC Data Source: USDA-FAS, Compiled & Analysis by LMIC 25
BOXED BEEF CUTOUT VALUE Choice 600-900 Lbs. Carcass, Weekly CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value 600-900 Lbs., Weekly $ Per Cwt. $ Per Cwt. 205 20 195 185 2006-10 18 16 14 2006-10 175 165 12 10 8 155 145 6 4 2 135 JAN APR JUL OCT 0 JAN APR JUL OCT C-P-62 C-P-68 Data Source: USDA-AMS Data Source: USDA-AMS, Compiled & Analysis by LMIC STEER HIDE AND OFFAL VALUE Live Animal Basis, Weekly SLAUGHTER STEER PRICES 5 Market Weighted Average, Weekly $ Per Cwt. 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 JAN APR JUL OCT 2006-10 $ Per Cwt. 135 130 125 120 115 110 105 100 95 90 85 80 JAN APR JUL OCT 2006-10 Data Source: USDA-AMS C-P-39 Data Source: USDA-AMS 26
MED. & LRG. #1 FEEDER STEER PRICES 700-800 Pounds, Southern Plains, Weekly MED. & LRG. #1 STEER CALF PRICES 500-600 Pounds, Southern Plains, Weekly $ Per Cwt. $ Per Cwt. 170 200 160 150 140 2006-10 190 180 170 160 2006-10 130 150 120 140 110 100 130 120 110 90 JAN APR JUL OCT 100 JAN APR JUL OCT C-P-49 C-P-54 Data Source: USDA-AMS, Compiled & Analysis by LMIC Data Source: USDA-AMS, Compiled & Analysis by LMIC MED. & LRG. #1 STEER CALF PRICES 400-500 Pounds, Southern Plains, Weekly SLAUGHTER COW PRICES Southern Plains, 85-90% Lean, Weekly $ Per Cwt. $ Per Cwt. 235 215 195 2006-10 90 80 2006-10 175 70 155 60 135 50 115 JAN APR JUL OCT 40 JAN APR JUL OCT C-P-49A C-P-35 Data Source: USDA-AMS, Compiled & Analysis by LMIC Data Source: USDA-AMS 27
Thou. Head 95 90 85 80 75 70 65 60 55 50 45 JAN APR BEEF COW SLAUGHTER Federally Inspected, Weekly JUL OCT 2006-10 Thou. Head 70 65 60 55 50 45 40 35 JAN APR DAIRY COW SLAUGHTER Federally Inspected, Weekly JUL OCT 2006-10 C-S-34 10/12/12 C-S-35 10/12/12 Data Source: USDA-AMS & USDA-NASS Data Source: USDA-AMS & USDA-NASS 7 Mil. Head HEIFERS HELD AS BEEF COW REPLACEMENTS July 1, U.S. Mil. Head 7.0 HEIFERS HELD AS BEEF COW REPLACEMENTS January 1, U.S. 6 6.5 6.0 5 0 % 5.5 +1.4 % 4 5.0 4.5 3 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 4.0 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 C-N-37 07/20/12 C-N-38 07/20/12 Data Source: USDA-NASS Data Source: USDA-NASS 28
$ Per Cow 200 ESTIMATED AVERAGE COW CALF RETURNS Returns Over Cash Cost (Includes Pasture Rent), Annual Mil. Head 12.5 CATTLE ON FEED US Total, Monthly 150 100 50 0-50 12.0 11.5 11.0 10.5 10.0 2006/10-100 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 9.5 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC C-P-66 C-N-10 09/20/12 09/21/12 Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC Data Source: USDA-NASS Mil. Head 2.7 FEEDLOT PLACEMENTS US Total, Monthly Mil. Head 1.6 CATTLE PLACED WEIGHING LESS THAN 700 POUNDS 1,000 Plus Capacity Feedlots, U.S., Monthly 2.5 2.3 2006/10 1.4 1.2 2006/10 2.1 1.9 1.0 1.7 1.5 0.8 0.6 1.3 0.4 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC C-N-08 C-N-08A 09/21/12 09/21/12 Data Source: USDA-NASS Data Source: USDA-NASS, Compiled & Analysis by LMIC 29
Mil. Head 2.2 FED CATTLE MARKETINGS US Total, Monthly Percent 20 FED CATTLE MARKETINGS As a Percent of Cattle on Feed, Monthly 2.1 2.0 1.9 1.8 1.7 2006/10 19 18 17 16 15 14 2006/10 1.6 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 13 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC C-M-11 09/21/12 C-M-23 09/21/12 Data Source: USDA-NASS Data Source: USDA-NASS, Compiled & Analysis by LMIC LIVE WEIGHT -- STEER AND HEIFER Texas/Oklahoma Panhandle Area, Weekly U S BEEF AND VEAL IMPORTS Carcass Weight, Monthly Pounds 1290 1280 1270 1260 1250 1240 1230 1220 1210 1200 1190 JAN APR JUL OCT 2006-10 Mil. Pounds 265 245 225 205 185 165 145 125 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2006-010 C-S-26 09/28/12 I-N-15 09/12/12 Data Source: USDA-AMS Data Source: USDA-ERS & USDA-FAS 30
U S BEEF AND VEAL EXPORTS Carcass Weight, Monthly U S NET BEEF IMPORTS Carcass Weight, Monthly Mil. Pounds 280 260 240 220 200 180 160 140 120 100 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2006-010 Mil. Pounds 200 150 100 50 0-50 -100 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2006-010 I-N-16 09/12/12 I-N-31 09/12/12 Data Source: USDA-ERS & USDA-FAS Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC DEC Live Cattle Contract APR 2013 Live Cattle Contract Example of poor market possible for next year heavy numbers & slow marketings 31
NOV Feeder Cattle Contract MAR 2013 Feeder Cattle Contract Example of worst case scenario for the next few years soft fed cattle & high corn Input Market Outlook Summary Uncertainty & risk. High fuel costs but not increasing Fertilizer has to follow. Chemical inputs will likely also. Seed availability or lack of Supply industries operating under capacity & unwilling to take risk. Credit risk & broker risk Inflation unique to food & energy sectors. 32
Short Term Outlook Drought markets drive prices up to where use is rationed and production encouraged. Happened in feedgrains happened in wheat. Corn then hay, soybeans, & wheat. Volatility through harvest is in and then some more volatility. Weather is creating a strong early delivery market. Need two good corn (& oilseed) crops. But it all depends on next year s weather 33
Short Term Outlook Fed cattle excellent domestic and international demand persist & grow? Feeder cattle & calves dry weather feed prices persistent supplies. Beef herd expansion Dairy herd liquidation Contact and Link Information Stephen.Koontz@ColoState.Edu http://dare.agsci.colostate.edu/skoontz/ 34