Analysis: Feed

US Hay Production, Stocks, And Price

Feb 11, 4:53 pm | Corn, Feed, Cattle

US Hay Production Down in 2017 on Lower Yields: US hay production peaked in the late ’90s and has been in steady decline since, particularly in the Corn Belt. Midwest livestock herds have declined, and the profits of competing crops have easily bid away marginally productive acres. However, tighter budgets last year saw another increase in hay acres, especially across the Great Plains States. Yields also improved and production rose 9% in the Great Plains states. Elsewhere in the country, production was unchanged in the Southeast and declined in every other region. Producers in the Cornbelt bailed 2.7 Mil fewer tons (-11%), production in the S Plains fell 1.7 Mil tons (-11%), and there was 2.3 Mil tons (-9%) less bailed in the Western US States.  

 

 

Dec 1 Hay Stocks Just Above Record Lows:

Last week’s Annual Crop Production Summary report from NASS showed that the US produced 123.6 Mil tons of hay in 2018, a year over year decline of 4% – the 2nd consecutive annual decline.   

  Excluding the 2012 drought, it was the lowest hay production figure since 1976! Total hay acres on a national basis increased fractionally from 2017; however, yields fell 4% and pulled production down.

  Additionally, NASS reported 2018 Dec 1st all hay stocks were just above the 2012 low at 79 Mil tons. The red bars on the chart reflects Dec-May hay disappearance, which has been historically low since 2010. A year, Dec-May hay disappearance totaled 69 Mil tons. A similar usage rate this year would put May 1st hay stocks at a record low 10 Mil tons. Livestock feeders in the west, are reporting increased hay demand needs due to winter storms that started back in November, and have restricted winter pasturing.

US National Average Hay Price Above Corn: In early 2017 the US national average hay price was near even with the national average corn price (on a per ton basis). Hay prices began to rally in the summer of 2017 on a N Plains drought and traded well over the price of corn all year. Another hay rally got underway in the spring of 2018, with hay moving from a $23/ton premium to corn in March, to $34 in April as 1st cuttings were delayed due to a cool/wet spring. The hay premium hit $42/ton by September and has since held around $40 on a national basis. Alfalfa hay premiums have been even larger, reaching a high of $59/ton over corn. Regionally, price spreads have been even wider in the major cattle feeding states. New crop hay supplies and pasture availability are several months out, and we expect hay prices will continue to hold historical premiums to corn, at least until new crop supplies come available in May

 

  

US Hay Stocks and Minor Feedgrain Supply & Demand

May 11, 3:36 pm | Feed

4The Monthly Crop Production report showed US May 1st all hay stocks on farm at 15.7 million tons. This was a 36% decline from a year ago, and the 3rd lowest national stocks figure on record. 2017 hay production was down just 3% from the previous year; however, Dec 1 stocks were off 10% from 2016. Strong feed demand continued through the winter months amid larger livestock herds and poor winter pasture conditions across the Plains States. Combined stocks in the Great Plains states were off 29% from a year ago, while supplies in the S Plains fell 59%. The largest decline was in TX, where May 1 stocks were down 63%, followed by a 45% drop in NE. Even stocks in the Cornbelt were down 47% year over year. The IL hay supply was record low at 140,000 tons, while IN stocks were 68% lower at 100,000 tons. MO stocks of 580,000 tons were 61% less than last year, and the lowest since 1984.

  Initial hay cuttings across much of the Midwest and Plains states have been delayed by cold April temps, and are still several weeks out. On a national basis, hay has sold at an $18-20 ton premium to corn since last spring, and strong premiums are expected to continue well into summer.

pfgFeedgrain prices will ebb and flow along with weather forecasts this summer, but are expected to stay elevated relative to recent years. This is particularly true in the case of barley, which can’t afford any Northern Hemisphere yield loss. The high price of minor feedgrains will keep corn supported on breaks, and recall that in 2015-2016 barley traded at or below parity with corn. Now it is the most expensive world feedgrain. The graphic at left shows world cash feedgrain fob prices for spot and for August delivery. Gulf corn maintains a discount of $17/MT to Black Sea barley, which is important. And global barley trade is forecast by the USDA to expand another million tons in 2018/19. Importers will again be forced to pay prices similar to last year. 

fg2The USDA in its May WASDE pegged combined global barley, sorghum and oat harvested area at 100 Mil Hectares, up 3 Mil from last year but still the second lowest of the last six years. And US farmers intend to plant 10.9 Mil Acres of barley, sorghum and oats, up only 300,000 from 2017. Still, assuming trend yield and normal demand growth, minor feedgrain stocks tighten further in 2018. World combined barley, sorghum and oat stocks/use is projected at 10.4%, vs. 10.9% in 17/18 and the lowest since records began in 1960. When adding corn, world feedgrain stocks/use is pegged at the lowest level since 1973. Normal or better than normal weather is needed. And this underscores our message that one shouldn’t turn bearish corn on breaks. We maintain fair value into late summer lies between $3.85-4.20, basis spot. How much time is spent at either end of the range will be a function of US & Northern Hemisphere weather. Weather looks non-threatening currently, but the whole of the growing season lies ahead. 

US Hay Production, Stocks, And Price

Feb 28, 3:27 pm | Corn, Feed, Cattle

4US hay production peaked in the late 90’s and has been in steady decline since, particularly in the Corn Belt region. Midwest livestock herds have declined and the profits of competing crops more easily bid marginal acres away. However, tighter budgets last year saw a slight increase in hay acres, especially across the Great Plains states, that collective increased hay acreage by 410,000 acres. However, hay yields across the Plains and Midwest were lower, with ND yields dropping 22% year over year, while yields in SD were off 13%, and there was a 16% decline in TX yields. In the Cornbelt, yields declined in every state, except IL. Regional production was off 6% in the Western states, just 2% lower across the Great Plains, while hay production in the S Plains fell 11% year over year.

5NASS estimated total hay acres in 2017 at 53.8 Mil Acres, a less than 1% increase from the previous year, but the 2nd increase of the last decade. However that slight increase in production was more than offset by a drop in the national average hay yield. Total US hay production at 131.5 Mil tons was the lowest since the 2012 drought, and the 2nd lowest total since 1980. Back in January, NASS reported that December 1st hay stocks were off 10% from a year ago at 86 Mil tons, or the 2nd lowest total since 1977. And while stocks are historically tight, the first cutting of hay for much of the US is still months away. The chart shows Dec-May hay usage has averaged near 69 Mil tons since 2012, and totaled 71.5 Mil tons a year ago. A similar usage rate this year would draw May 1 stocks back near the record low that was set in 2013, following the 2012 drought.

6In early 2017 the US national average hay price was near even with the national average corn price. However, hay prices spiked last spring as the N Plains drought began to intensify and it became clear that US forage supplies would be in decline. Hay has held a $20-25/ton price premium to corn, with the Feb Agriculture Price report on Tuesday showing a national average all hay price of $139/ton versus the corn price of $117.50/ton ($3.29/bu). Compared to a year ago, the largest increase in all hay prices was noted across the Central and Northern Plains states, where prices ranged from 116% of a year ago in N Dakota, to 140% of last year in both KS and SD. New crop hay supplies and pasture availability are still several months and we expect hay prices will maintain premium to corn, at least until new crop supplies come available.

Australian Grain Supplies

Jan 25, 4:47 pm | Wheat, Feed

4

Australia’s grain market in 2017/18 is tight! And it looks to remain so until new crops can be harvested in late 2018/early 2019. ABARES shocked the market with a sizeable downward revision to 2016 wheat production (30.3 MMTs, vs. 35 previously). The USDA followed, and thus lowered 2016 Aussie wheat stocks from a lofty 7.1 MMTs to 4.4. This in turn reduced 2017 wheat stocks to 3.2 MMTs, vs. 4.3 MMTs previously. Lower wheat production has been well documented, but drought also affected the Aussie barley crop, and combined major grain stocks in Australia are now forecast at just 4.1 MMTs, vs. 5.1 in December and 5.8 MMTs last year. Aussie grain stocks in 17/18 will be the lowest since 1998, and may fall further in coming monthly reports.

 

5 Favorable rainfall resumed briefly across E Australia in November, which was a positive for sorghum production, but since excessive heat and dryness have been widespread. Rainfall since December 1 across a majority of Australia’s sorghum belt exists in a range of just 20-40% of normal; high temps in the 90s/low 100s have too common and downward revisions to Australia’s sorghum crop lie ahead.

 Note that Australia typically exports just 500-900,000 MTs of sorghum, but amid lower production some 250-400,000 MTs of sorghum demand must be eliminated altogether to maintain any level of end stocks. Unlike almost every other nation in the world, Aussie grain supplies must be rationed in the months ahead, and lofty wheat prices may shift some demand to the US beginning in spring.

6  And the abrupt change in Australian wheat ending stocks has long term consequences. Assuming trend yield and stable domestic use, AgResource’s work suggests the market there must buy another 1 Mil Hectares of wheat production this spring. Such seedings will be the largest since 2011 and just 400,000 hectares shy of the all-time record. Amid reduced carryover stocks, Australia’s exportable wheat surplus is unlikely to exceed 18 MMTs without near perfect weather next autumn.

  Australian wheat fob offers this week range from $225-235/MT, vs. comparable Gulf HRW at $206 and vs. Black Sea origin at $195. Some rationing is  occurring already. But, ARC doubts Aussie grain markets have much downside risk, and until enlarged wheat seedings are confirmed in May and June. Seasonally, we note that Aussie wheat prices tend to move higher into June/July. Aussie fob offers will remain elevated

 

North American Oats Supply & Demand

Oct 24, 4:57 pm | Feed

wheat 10-24Quietly, US oat futures have rallied $.50/Bu (23%) from their seasonal lows scored in early September, which makes oats one of the more exciting of the ag markets this year. The graphic below compares the oats market’s performance against corn and wheat, and it just might be the case that oat prices need to secure more acreage in 2018. Assuming trend yields, it’s very likely that the combined US & Canadian balance sheet tightens further without acreage expansion and already oat supply and demand has gotten rather tight compared to recent years. Oats consumption has actually risen slowly but steadily since 2014, which harvested area has not. Dec oats are still priced at a fairly large discount to corn, and so a more pronounced rally effort may be needed.

oo2The USDA in its Small Grains Summary cut US production 5 Mil Bu, which more than offset a lesser cut in domestic use. Canadian production as of the October WASDE was pegged at 3.7 MMTs, up 500,000 from a year ago, but higher Canadian exports will be demanded in the world market, and Canadian end stocks will be unchanged on the year, barring any surprise in Stats Can’s next production report in December. North American oat ending stocks are estimated at just 1.1 MMTs, the lowest since 2012. Stocks/use, too, will rest a multi-year low, and either stocks drop further in 2018 and beyond or it’s the job of price to find additional acreage – which may be a tough chore given this year’s boost in spring wheat prices. Either scenario suggests downside risk in oats is limited.

oo3Should the market be content to NOT secure acreage, and assuming trend yield and trend consumption growth, the 2018/19 balance sheet is displayed below. Trend yield is calculated just under recent year, while, again, domestic use has been expected, if only slightly, in recent years. End stocks of just 700,000 MTs, and stocks/use of 11%, would be record lows, and amid declining carryover stocks – which as evidenced in wheat and corn recently provide an important buffer against production loss – this trend of ever tightening supply & demand will continue.

  It’s likely that spot oat futures test $3.00 by late year, and without additional N American acres, the market could trade much closer to parity with corn by early/mid-2018.

North American Oats Supply & Demand

Jun 20, 4:50 pm | Feed

oats 1

The US oat crop is suffering under the same conditions as the spring wheat crop, and yield reductions lie in the offing. The table above displays production by state, and simply accounting for drought in the Northern Plains, the USDA’s initial US oats yield is likely some 5-6 Bu/Acre too high. Conditions across the Midwest are decent, but we note that SD, ND and MT account for 30% of the oats production. Reduced production looks to impact feedgrain consumption, and imports from Canada look to be a multi-year high.

oats 2Condition ratings in ND are the lowest on record for mid-June, and ratings in SD are the 3rd lowest on record. GD/EX in ND as of Sunday was pegged at just 30%, vs. 81% a year ago; GD/EX in SD was pegged at 33%, vs. 68% last year; and GD/EX in MT was pegged at 29%, vs. 71% a year ago. The graphic adjacent displays the relationship between crop ratings in mid-June and whether yield was above or below trend in ND. There’s a decent fit, and never has ND’s oats yield exceeded trend while mid-June crop ratings were below 50% GD/EX. In fact, our work suggests ND’s oats yield will be 45-50% below trend, and at 40 Bu/Acre, yield in 17/18 will be the lowest since 1989. It’s not a big market, but amid poor pasture ratings and reduced wheat production, more corn will be fed across the Northern Plains.

oats 4Even assuming normal weather and trend yield in Canada, North America’s oats balance sheet will be tightening – and noticeably so relative to recent years. ARC pegs combined US & Canadian oats production at 288 Mil Bu, down 6 Mil from the USDA’s June forecast. North American oats ending stocks are estimated at 65 Mil Bu, down 6 Mil from USDA and down 18 Mil from last year. Notice that stocks/use is cut in half from 2015/16, and stocks/use at 15% is actually the lowest on record.

  Corn holds a 42% premium to oats this evening (basis spot futures), which compares to a premium of 110% on this week in 2016. Cash corn is also quoted at a $16/metric ton discount to HRW across the W Plains, and on the margin corn is better positioned to maximize feed use.