- Editor's Note -
Texas Extension Economistís
| By Carroll Smith|
Mark Welch is a well respected Texas AgriLife Extension Economist who publishes a Feed Grain Market Outlook. Following are highlights from his Nov. 9, 2011 report: USDA lowered its U.S. corn yield estimate in WASDE (Nov. 9) down to 146.7 from 148.1. Total corn production declined 123 million bushels with this adjustment. These changes were within the range of trade expectations but below the average trade guess. The U.S. corn stocks to use ratio declined in the November report from 6.8 percent in October to 6.69 percent. Corn for feed was reduced by 100 million bushels on the demand side, resulting in a net reduction in ending stocks of 23 million.
The world corn supply situation remains tight. Measured by days of use on hand at the end of the current marketing year, the current estimate is to end 2012 with a 51-day supply of corn on hand; the 20-year average supply is 86 days. Demand for grain continues to grow. On a per capita basis, corn leads the other major grains increasing 2.2 percent this year compared to 1.5 percent for soybeans and 1.1 percent for both wheat and rice.
Commodity prices may gain support from news out of China that its annual inflation rate dropped the most since February 2009. Success in the battle against inflation points toward policies aimed at economic growth. Since October a year ago, the Chinese Central bank had been raising interest rates and bank reserve requirements in an effort to cool the economy and stem inflation.
With tight stocks and strong demand, corn cannot afford to give up acres in 2012. That alone should keep prices strong through the winter with additional volatility provided by weather concerns as we get closer to spring. But, if yield prospects return to normal and demand is constant, planted acreage near 2011 levels will result in a significant increase in ending stocks. Prices closer to $5 than $6 could be ahead in such a case. Careful budget analysis will be needed this winter to evaluate pricing opportunities for next year’s crop early in the season. Now is the time to familiarize yourself with tools that establish downside price protection while keeping the opportunity to profit from higher prices.
To view Welch’s Feed Grain Market Outlook in its entirety, go to agecoext.tamu.edu/resources/market-outlook/feedgrains.
The opinions and recommendations expressed are solely those of Welch and are
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