Fundamentally Speaking

Sep-Nov Corn Feed Usage Estimates

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

With the release of the December WASDE report, market participants will now await a slew of reports to be released January 12.

These include another WASDE report, the final row crop production figures for 2014, the quarterly grain stocks report as of December 1 and the first estimate of 2015 U.S. winter wheat seedings.

Of these we suspect the final crop report and the corn stocks figure will garner most of the attention.

The production report will not only incorporate changes in yield but perhaps revised planted and harvested figures.

The stocks report will then reflect changes in output and provide the first clues about first quarter (Sep-Nov) corn feed demand.

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As discussed in prior posts, the USDA does not calculate a feed/residual estimate per se but rather backs into it based on the stocks number less export and food, seed, and industrial (FSI) demand that is estimated on a monthly basis.

Note that the December 1 corn stocks estimate has been very volatile over the past few years given the large amount of non-corn feed being consumed these days, less accuracy in calculating both on and off-farm stocks, and trying to gauge how much of the crop was actually harvested during the stocks survey period (last half of November).

The attached graphic shows the Sep-Nov feed use estimate as a percent of the December WASDE report while also plotting the change in the USDA's corn feed estimate from the December to the January WASDE reports and the change in U.S. corn production from the November to the final crop report in January, both in million bushels.

Over the years the percent of corn fed in the first quarter of the marketing year has moved from 25% up close to 50% two years ago.

Actually for a period of ten years from 1997 to 2007 Sep-Nov feed use averaged anywhere from 36-38% of the December WASDE total year feed projection but in three of the past six years it has been over 42% of the total year projection.

A lower than expected December 1 corn stocks report usually results in a higher January WASDE feed estimate than the one furnished the month prior and vice-versa which is why we look at the Dec to Jan change for this sector.

We had thought that a higher December 1 corn stocks may be due to increases in production from the November to the January report and changes in production would be correlated with changes in feed demand.

The reason for this is higher production can mean greater supplies and lower prices triggering higher demand not only for feed but perhaps exports and industrial demand also.

This however is not the case as the change in feed demand from the December to the January WASDE vs. the change in production from the November to the January reports is a very loose -0.11.

We suspect that feed demand should have been quite good in the Sep-Nov quarter based on record feeding margins, the lowest price of corn in four years and the large premium wheat commanded to corn for most of the quarter.

(KA)

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