Last Thursday, USDA released the September Crop Production report along with the monthly World Agricultural Supply and Demand Estimates (WASDE) report. The market was closely watching to see what USDA thinks about what is shaping up to be a corn crop for the record books.

USDA’s national average corn yield estimate came in at 171.7 bushels per acre. This was right at a bushel higher than the average pre-report estimate. It will be, if realized, a record national average yield. A number of key states are expecting phenomenal yields this year. Most notable is Illinois, for which the state average yield estimate was pegged at 194 bushels per acre. Among major producing states, record yields are currently projected for Indiana (184 bushels/acre), Iowa (185 bushels/acre), and Nebraska (179 bushels/acre). These yields correspond to an aggregate production estimate of 14.395 billion bushels, which will be the second consecutive year of record-high corn production following last year’s 13.925 billion bushel crop.

With the increased availability of corn, use is expected to increase. Estimates of feed use, ethanol use, and exports were all increased modestly from last month’s report. Higher use do not fully offset the higher production estimate, though; and corn carryover at the end of the 2014/15 marketing year is currently projected at just over 2 billion bushels – corresponding to a stocks-to-use ratio of 14.7%. This will be the highest level of carryover (in terms of stocks-to-use) since 2005/06. The record U.S. corn crop is expected to accompany record global wheat and oilseed crops this year. Overall, global grain and oilseed markets appear to be completing, with this year’s crops, a transition to a relative abundance following almost a decade of relative shortage. Demand for feedgrains and oilseeds remains strong globally, and that is not likely to change in the near future; but global capacity has also been increased as well. It now appears that with this year’s crops, world feedgrain and oilseed production will have exceeded use in three of the past four years.

The September WASDE paints a bit different picture for meat supplies. Estimates of U.S. red meat and poultry production for both 2014 and 2015 were revised down a bit from last month. To be more specific for 2014, beef and pork production estimates were revised downward from last month; the 2014 estimate of broiler production was revised upward but not enough to offset to lower pork and beef numbers. Beef production in 2014 is now projected to be 5.4% below last year’s level, reflecting relatively tight fed cattle supplies and reduced female slaughter. Looking ahead to 2015, beef production is currently forecast to decline by a further 2.8%. On the other hand, pork and broiler production are both projected to expand by around 2.5% in 2015. If these forecasts hold, for pork this will mark the end of a couple of years of contraction. For broilers, it will mark the third year of increasing production.

Further tightening of beef supplies will continue to keep pressure on beef retail prices, which have surged to record levels this year. This will be balanced, though, by higher combined meat availability as pork production rebounds and poultry production continues to expand in 2015. In this environment, beef prices (retail and wholesale) will likely encounter stiff resistance to anything like the kind of price increases that have characterized 2014.


The Markets

Two weeks ago, fed cattle prices rather unexpectedly made a six or seven dollar jump to get back close to the highs for the year. Last week, the market was a little softer but still managed to hold onto most of those gains from two weeks ago. Last week’s 5-Area weighted average price worked out to $160.84, down less than 50 cents from the prior week’s weighted average – though in some locations (e.g., Kansas) prices were more like $1 to $2 lower. Wholesale beef prices were higher last week. The weekly average Choice cutout was $3.46 higher than the prior week, although it may be worth keeping in mind as we look ahead that the lowest prices of the week were on Friday last week. Strong fed cattle prices and weak corn prices are a potent combination for the calf market. Feeder and stocker cattle prices were higher again last week, with the National Feeder and Stocker Cattle Summary report calling the market for yearlings $3 to $8 higher and for stockers steady to $5 higher than the prior week.

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