Fundamentally Speaking
Joel Karlin DTN Contributing Analyst

Thursday 01/24/13

Implied Corn Fed Per GCAU vs. Avg Sep-Nov Corn Futures Price

Giving the corn market a recent bounce was the surprisingly low December 1 corn stocks figure of 8.030 billion bushels, about 200 million bushels below trade expectations.

This figure is even more surprising in light of a final production report 120 million bushels greater than what had been anticipated implying Sep-Nov 2012 usage was far higher than had been calculated.

With the ethanol grind and exports pretty well known and actually running below the December USDA projections, this implies that feed/residual demand in this period was much higher than had previously been estimated.

As consequence, the USDA in its January WASDE report upped the 2012-13 feed/residual estimate by 300 million bushels to 4.450 billion, which is still the fifth consecutive decline in this sector.

Given the December 1stocks number and already known export and food-seed-industrial demand, this works out to a Sep-Nov 2013 feed/residual figure of 2.053 billion bushels.

This is more than 220 million bushels or 12.5% above the comparable year ago figure despite December corn futures during this time period averaging $7.51 per bushel, a record high and $1.48 above the Sep-Nov 2011 period.

This news was very surprising in light widespread reports of poor feeding margins and grain consuming animal units (GCAU’s) that are 1.3% below year ago levels.

It is entirely possible that feed demand was this strong given dairy cow numbers about equal with year ago levels, as were hog numbers, broilers 2% higher though the beef cattle herd is the lowest since 1952.

Still, the accompanying chart which plots average Sep-Nov corn futures prices in $ per bushel vs. corn feed use per GCAU shows how rising corn prices over time have had a negative impact on the amount of corn fed.

This trend continues with the corn fed/GCAU at 48.6 bushels vs. 49.0 a year ago.

The chart shows that corn feed use per GCAU for the Sep-Nov quarter came in a lot higher than expected given the level of prices that prevailed at that time.

Plugging numbers into the equation implies a corn fed/GCAU closer to 45.0 bushels, which would put total feed demand for the year closer to that 4.150 billion figure.


Posted at 8:39AM CST 01/24/13
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