Last fall, when I said the focus would be on weather in 2013, I couldn't have come close to saying South America would have almost ideal growing conditions and the U.S. would start out completely opposite of 2012. All sorts of reasons for the turn a about from climate change, cycle changes and Mother Nature replenishing drought ravished areas are batted around. But when it boils down to it, the South American crops grew like never before and besides delayed planting, the US crops with all the moisture and now warming temperatures appear to be proving rain makes grain.
Of course, there are areas that have too much water but from pictures and reports I received in the last week where grains were planted by May 20 give or take a few days, most producers tell me they are more than satisfied with the way growth is progressing. After last year, I am glad to hear it. I have to admit, there are plenty of producers with the attitude that the "glass is half empty" but as I learned long ago, until the crop is combined, there will always be those farmers that for one reason or another won't accept a large crop. If their crops are doing well, they know a cousin a few mils from their farm that is having problems or a trucker reported seeing problems two states away from the home base.
But will it matter all that much what the US grows.
Brazil's soybean crop is taking market share from the U.S. Argentina and China have agreed to take three varieties of genetically modified grains which in my opinion shows the desire of China to use all available sources when they buy grain.
Russia is expecting to export a whopping 18 percent more wheat than a year ago. This spring, when old crop supplies in Russia began to run low, instead of turning away business they pulled what from reserves. They lost market share in 2010 when they quit exporting wheat and corn due to drought conditions and have worked to regain it courting Egypt in 2011 and 2012 to the point U.S. lost one of its strongest buyers. In 2012 Japan went shopping in Ukraine and Russia and with exchanges rates favoring more buying, Japan will very likely buy Russian and former Soviet Union countries grains in 2013. Like Argentina, in 2012 China set up trade agreements with Ukraine loaning billions to improve infra-structure to store and move grain.
Often, I feel U.S. traders concentrate too much on exports. Yes, I can be put into the camp but one of mybiggest concerns now through the end of 2013 and well into 2014 will be the large drop in fed cattle numbers. The calf crop in 2012 was last estimated to be down three percent from 2011. It is the smallest calf crop since 1949.
When I think about 1949, it was a time when the buildup of large cattle feedlots were beginning to take cattle away from traditional grass feeding especially throughout the northern Midwest and southwestern lower Plain states. In other words grain feeding was used to finish out cattle rather than placing light weight feeders in lots. Now, cattle feeding, especially through the Midwest, are in lots with bunkers filled with high value grain. For several months at the beginning of 2013 cattle placed in feedlots fewer than 1000 head were the largest feeder cattle buyers. However, by March the shift has been back to feedlots feeding over 1000 head. This is likely due to cattle producers in the Midwest calculating the difference between feeding cattle and what the insured price for corn with high cost feeders. Estimates show feedlot margins running well over $100/head losses.
In the past year, I believe we had cattle placed light, put on feed and then moved into new lots as
producers look at profitable margins with lightweight cattle first placed around 450 late fall 2012 and being moved at weights nearing 800 to 900 pounds. In other words, as we go into late summer and fall/winter of 2013 numbers could sink and drop well over 10 percent. With the Plains and Southwest dropping over 47 percent of the breeding herd in 2010/2011putting two and two together comes up with a bigger drop of the estimated 3 percent.
Grain prices will be hit hard with the severe drop in cattle. Little is talked about the demand for dried distiller grains from the ethanol industry but complain or not about corn being used for fuel; cattle feeders use the "bi-product" whenever it is available. With the drop in cattle on feed, the demand for DDGs will drop. With exporters buying grain outside of the U.S., exports for DDGS will also drop. The drop in DDGs will affect the bottom line for distillers.
Recent talk that China has plentiful supplies of soybeans is starting to show up with discrepancies of what the USDA estimates will be imported to estimates coming out of China. According to the USDA it expects China to import 69 million tonnes. Estimates from China are now looking at 63 million tonnes.
With the slowdown in the Chinese economy, there will be less demand for beans and meal and several Chinese analysts and those working in the soybean industry, feel too little notice has been given to the severe drop in poultry numbers due to the breakout of H7N9 bird flu. Many analysts in China feel it will take several months before the demand for poultry and the rebuilding of the flocks will occur. One top Chinese analysts looks for imports to drop down to 60.5 million tonnes.
The reluctance to sell grains shows when prices drop but quickly bounce of lows. On Monday, June 17,
new crop November soybeans dropped to lows last seen the last of May. When new sellers didn't surface, buy stops ensued and beans closed only slightly lower.
Look to sell rallies for corn and soybeans.
The wheat market will begin to show increases in yields as combines work north into Kansas. For now, look for wheat yields to be everywhere from poor where winter kill hurt growth to excellent where rains this spring will show big heads and test weights better than they have been for years.
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