Crop Progress keeps pressure on grain futures

Source: John D. Anderson, Senior Economist,American Farm Bureau Federation

The new crop December corn contract finished the week last week at its lowest level in about a year.  While old crop contracts remain well supported by tight current stocks and recent better-than-expected exports, expectations of a large 2012 crop have put pressure on new crop futures.  Last Friday, the spread between May and December corn contracts was $1.38.  This is the largest May/December inversion since 1996, when a similar fundamental situation (short old crop, expectations of large new crop) was developing. 

Very favorable planting progress so far this year has helped to add to the pressure from large expected plantings.  Monday’s Crop Progress report showed this year’s corn crop to be 71% planted through last week. This is far ahead of last year’s 40% rate (a very slow year) but a bit behind 2010’s 81% rate (a very fast year).  The five-year average – a better gauge of what should be considered normal – is for planting to be just under 47% complete by this time of year.  So, this year’s crop is, objectively, getting in the ground faster than usual.  It is consequently getting out of the ground faster.  Monday’s Crop Progress report estimated that this year’s corn crop was 32% emerged through last week compared to a 5-year average of 13% emerged by this time.  The “I” states are way ahead of the game this year.  Illinois, Indiana, and Iowa corn crops were shown to be 64%, 50%, and 23% emerged, respectively.  This compares with five-year average emergence of 18%, 12%, and 11%, respectively. 

Of course, an early crop is no guarantee of a good crop – just like we noted last year that a late crop was not necessarily doomed to failure (although last year’s crop did end up pretty much a failure – worst deviation below trend since 1993).  An early crop does improve the odds, though.  It improves the odds, first, that farmers will actually be able to plant all the corn they intend to plant.  A narrowing planting window won’t force them to shift to another crop.  And it improves the odds that the crop will avoid too much hot, dry weather during its critical pollination phase.  The market right now is trading those odds on the new crop contract, but we still have a long way to go before the crop is made, and – as the old crop contracts remind us – corn supplies are still awfully tight right now.

We don’t often mention wheat in the pages of the ICM, but wheat is obviously a critically important component of the global grain complex – the most widely produced and consumed grain in the world.  What happens with the wheat market has important implications for the feed grain market, and the wheat market was contributing to some of last week’s pressure on new crop corn.  Again, the Crop Progress report is instructive.  Through last week, winter wheat was 63% headed, compared with a five-year average of 34%.  In Kansas, a remarkable 92% of the crop was headed versus a five-year average for this time of year of just 20%.  The crop is early, and so far it is in very good shape.  Through last week, 63% of the crop was rated as Good or Excellent – the second highest condition rating in the past ten years. 

The Markets

Fed cattle prices picked up about a dollar last week compared to the prior week.  The 5-Area steer price worked out to a few cents over $120 after slipping below that level in the prior week for the first time in 2012.  Wholesale beef prices were fairly stable this week.  The weekly average Choice cutout gained 66 cents over the prior week.  Prices did slip toward the end of the week, though, with the Choice cutout losing almost a dollar between Wednesday and Friday.  Calf prices were mixed last week.  Large early-week sales at Oklahoma City and Joplin posted prices that were $2 to $5 lower than the prior week.  The National Feeder and Stocker Cattle Summary from USDA-AMS noted some instances of steady to $3 higher calf prices, though.  Some of this price variability appears to be related to the uneven nature of calf condition at this time of year.  Several market reports made note of the fleshy condition of calves coming off of grass right now.  Grain futures were mostly lower last week.  Corn exports remained strong last week – a feature that really pushed prices up two weeks ago – but this was largely offset by favorable planting progress, growing expectations of a very early and very large winter wheat crop, and some negative outside market influences (weak employment report and mostly bad news from Europe).

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