This week saw a rise in grain and soybean contracts followed by a decline on ‘profit taking’ in managed money accounts. DEC Corn rose to a little over $4.70 on Monday and has traded below that level for the rest of the week. USDA Crop Progress on Monday finally had corn plantings at 92% which is still behind average planting pace, but is the first week to rise above 90% for the 2019 crop year. A lot of action happened outside of the commodity markets this week. Along with news of better plantings, some managed money probably moved out of commodities and in to index funds to take advantage of record high closings. Gains in the stock market came off of Wednesday’s Fed meeting suggesting a significant likelihood of decreased interest rates later in the summer. Oil prices also climbed on increasing tensions with Iran.
Next Friday at noon is USDA’s acreage report. I assume there will be more contract movement on that announcement. If previous reports underestimated the severity of planting issues the price will likely rise, approaching $5.00 for the DEC contract. If planting issues were more severe than previously announced, corn will likely move down, potentially sending carryover movement into other grains.
The 2019 Texas A&M AgriLife Extension budgets for District 1 have break-even prices at $4.01 for corn, where yields are 225 BPA. If producers are comfortable with their yield this is a good time to consider pricing some old crop and new crop corn. Including local basis, averaging $0.19 over, corn contracts are in a profitable range right now. Next week’s report could move price either way.
Cattle on Feed, out today, had inventory down from last month, yet at 11.7 million cattle and calves on feed, this is still the highest inventory for June 1 since the data series began in 1996. This is the second month in a row to break the monthly record. Texas and Oklahoma feeders saw the largest change in inventory; 3% increase month over month. Placements in May were 93% of the previous year, likely due in part to pasture conditions, which we address below.
Drought, Pasture Conditions, and Cattle
We’re in much different conditions for pasture than we were at this time last year, both nationwide and here on the Texas High Plains. Last year 84% of the state of Texas was in some form of drought while this year 94% is in no form of drought (B., C.). The ample rainfall this spring has led to around 70% of Texas and U.S. pastures rating good to excellent condition according to the June 17 Crop Progress report.
A. U.S. Drought Status 6/18/19 (Left) and 6/20/19 (Right)
B. Texas Drought Status 6/18/19 (Left) and 6/20/19 (Right)
C. Percent of Texas in Drought Status D0-D4
D. Percent of Texas and U.S. Pasture Rated Good-Excellent May – October (USDA NASS)
As the graph in D. shows, pasture conditions for the U.S. (and the state of Texas) are around 10% higher than the 2014-2018 average. Plenty of cheap grass, coupled with the rising price of corn, mean it is relatively cheaper to add pounds in the pasture rather than on feed.
A lot of factors are coming together at once that could impact the fall market for feeder calves. Corn price is currently in the neighborhood of its 5-year high. This makes feeding calves on corn more expensive, lowering the price that feeders are willing to pay for calves to maintain there margins, demand being constant. The cow herd is also larger than it has been since the late 2000’s. The January 1 cow inventory placed the U.S. herd at 31. million head. With plenty of calves gaining well on high quality pasture, and seasonal patterns showing the greatest percentage of annual placements in September and October, we will likely see a lot of heavy animals ready to go on to feed this fall. If demand for beef, and therefor fed cattle, stays constant and corn price remains high, the price for these fall-placed feeders is likely to remain relatively depressed.
Next Week:
Watch for price movement in beans, corn, and cotton on Friday’s acreage report. If there is a run up on planting delays worse than previously estimated it will be a good opportunity to price some production. Prior to that, it is not a bad idea to price at least a portion of your crop, so long as you are currently in a profitable range, in the event that the report indicates the opposite.
Keep a look out for more information on the new cover crop forage rules. USDA RMA adjusted the 2019 haying/grazing date on prevent plant fields from November 1 to September 1 to allow farmers impacted by severe flooding more flexibility.
Important Dates:
June 24 – Crop Progress, NASS
June 28 – Acreage, NASS
In the News:
Feedstuffs – Forage assistance offered in wake of reduced planted acres
Feedstuffs – Laos reports first case of ASF