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Last Updated Feb 28, 2020 8:33 AM*
Corn Old Crop New Crop
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Pro Coop, Terril - 1 -.12K -.40
Lakota Ethanol - GPRE, Superior .02K -.22
CFE, Ocheyedan - Old 1 .04K -.35
Stateline Co-op, Halfa -.02K -.35
Poet Bio Refining, Emmetsburg .07H -.32
Max Yield, Mallard -.15H -.45
Max Yield, Fostoria -.10H -.43
Max Yield, Kerber .06H -.32
Ag Partners, Emmetsburg -.10K -.35
Ag Partners, Fonda -.12K -.40

Soybeans Old Crop New Crop
Location
Pro Coop, Terril - 1 -.60K -.90
Meadowland Co-op, Lamberton,MN -.55H -.80
CHS, Fairmont -.18H -.55
CFE, Ocheyedan - Old 1 -.50H -.80
First Co-op, Laurens -.54H -.90
Max Yield, Fostoria -.58H -.92
Max Yield, Mallard -.57H -.92
Ag Partners, Emmetsburg -.57K -.95
Ag Partners, Hartley -.62K -.91
WFS Co-op, Dolliver -.44H -.81

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*This information was current as of this date. We believe it to be accurate but assume no responsibility.

Commodity Headlines

Did That Really Just Happen?

January 23, 2020 10:42 AM

Source:  ProAg

The USDA released a number of important reports for the grain markets on January 10, 2019, including the quarterly Grain Stocks report, Annual Crop Production Summary, and the monthly World Agricultural Supply and Demand Estimates (WASDE) report.  In addition to all the estimates that garnered headlines, the USDA also released much less noticed revisions to production, ending stocks, and feed and residual use for corn for the 2018/19 marketing year.  While these revisions were not large in absolute terms and appeared rather unremarkable, they actually represented a potentially major shift in USDA methods for revising corn balance sheets and may have far-reaching implications for perceptions about the accuracy of USDA survey-based estimates of production and stocks.  The purpose of this article is examine the nature of the USDA revisions to the 2018/19 corn balance sheet and the broader implications for understanding and interpreting USDA estimates in the future.

Analysis

We begin with a discussion of the basics of constructing a balance sheet for a commodity.  In essence, the basic idea is a complete accounting for the sources of supply and use (or demand), with the end goal of the two perfectly balancing each other.  In mathematical terms, this basic balance sheet relationship is expressed as follows for a given marketing year:

(1) Beginning Stocks + Production + Imports – Domestic Use – Exports – Ending Stocks = 0.

Note that beginning stocks, production, and imports sum to total supply and domestic use, exports, and ending stocks sum to total use. vIf all categories in the balance sheet are measured perfectly and there is no wastage in the system, then total supplies will always balance total uses.  However, in reality this is never the case, so a residual use category must be added as follows:

(2) Beginning Stocks + Production + Imports  – Domestic Use – Exports – Residual Use – Ending Stocks = 0.

The residual use category impounds any measurement errors in the other supply and use categories as well as waste from spillage, spoilage, etc. in storage and transportation.

With this background, we can discuss how the basic balance sheet identity in (2) is applied to the corn, which we represent as follows:

(3) Beginning Stocks + Production + Imports – Food, Seed, and Industrial Use – Exports  Feed and Residual Use – Ending Stocks = 0.

Since the supply side of the balance sheet is basically the same for all storable commodity markets, the differences across markets are found in the use categories.  In addition to ending stocks, the corn balance sheet typically has three use categories, reflecting the major categories of corn consumption.  These are: i) food, seed, and industrial use, which includes ethanol, ii) exports, and iii) domestic feed and residual use.  The latter category requires some explanation.  Both feed use and residual use are considered “unmeasured” components of the corn balance sheet because direct survey estimates from public agencies are not available or stable relationships to known variables are difficult to obtain.  For these reasons, feed use and residual use for corn are lumped into one “residual” category.

We can now review the typical process used to imply feed and residual use in the corn balance sheet.  It is helpful to rewrite the corn balance sheet relationship as follows to align with “measured” and “unmeasured” data for a given marketing year:

(4) Beginning Stocks + Production + Imports – Exports – Food, Seed, and Industrial Use – Ending Stocks = Feed and Residual Use.

All of the measured components for the corn balance sheet appear to the left of the equal sign and the net of these components by definition equal feed and residual use.  Table 1 provides a specific example of the application of this relationship to the calculation of feed and residual use for the 2016/17 U.S. marketing year for corn.  Notice in particular the data source listed for each component of the corn balance sheet except feed and residual use.  After the 2016/17 marketing year was completed, beginning stocks for September 1, 2016 and ending stocks for August 31, 2017 could be collected from USDA Grain Stocks reports.  A final production estimate could be obtained from the USDA Crop Production Annual Summary.  Both imports and exports could be collected from the U.S. Census Bureau Trade data.  The largest component of food, seed, and industrial is corn processed into ethanol and co-products, and this could be obtained directly from the USDA Grain Crushings and Co-Products Production report.  The remainder of food, seed, and industrial use is quite stable from year-to-year and could be estimated quite accurately based on relationships to U.S. population and income growth. The net difference between the “measured” supply and use categories is 5,470 million bushels, and this is the USDA implied feed and residual use estimate for the 2016/17 marketing year.

It bears repeating that the implied estimate of feed and residual use is traditionally considered to contain the most uncertainty of any component in the corn balance sheet as there is no official measure or method to track corn disappearance into animal feeds.  It is often argued that corn feed and residual use should have a consistent relationship to changes in livestock numbers and availability of other grains for feeding.  First, this ignores the well-known tendency of feed and residual use in corn to vary with the size of the corn crop, most likely reflecting a residual “wastage” component that is a percentage of crop size rather than an absolute number of bushels. This leads to a positive correlation between feed and residual use and crop size that is larger than many appreciate.  Second, this ignores the fact that imputed feed and residual use impounds any errors in the “measured” components of the corn balance sheet.  This is likely to be most problematic for USDA corn production estimates, which are by far and away the largest single estimate used in the imputation process for feed and residual use. Irwin, Sanders, and Good (2014) note that the sampling error for any particular final USDA corn production estimate could easily be several hundred million bushels.

This discussion should make it clear why the USDA in the past has been averse to revising “measured” balance sheet components, like production and stocks, based on “unmeasured” feed and residual use, even if the level of feed and residual use appeared to be significantly out-of-line with livestock numbers.  If feed and residual use was not moving consistently with livestock numbers, market analysts could reasonably infer this reflected “unresolved” sampling errors in either production or stock estimates (Irwin, Sanders, and Good, 2014).  While one could infer that sampling errors in production or stock estimates were the culprit, there is no way in practice to disentangle the sources of error between production, stocks, and feed use without first having a rigorous survey-based measure of corn feed use.  Otherwise, the USDA would be forced to revise survey-based measures of production and stocks using highly uncertain past relationships of livestock numbers to feed and residual use.

From this perspective, the revisions announced last Friday January 10th to the 2018/19 U.S. corn balance sheet were quite surprising.  Table 2 lists the USDA balance sheet estimates for 2018/19 in the December 2019 WASDE report versus the estimates in the January 2020 WASDE report.  At first glance, the changes appear rather unremarkable and are not large in terms of absolute magnitude.  Area planted and harvested was reduced, with yield held constant.  This dropped total production by 80 million bushels.  At the same time, feed and residual use was increased by 186 million bushels and ending stocks were increased by 107 million bushels.  The revelation was the USDA’s motivation for making these changes.  A special note to the January 2020 Grain Stocks report indicated that, “After a thorough review of the balance sheet for the 2018 corn crop, NASS determined that revisions were necessary for the 2018 production and September 1, 2019 stocks estimates.”  Since USDA/NASS did not have any new survey data on 2018 production or September 1, 2019 stocks available, the statement strongly implied that the main driver for making the changes was the level of feed and residual use.  Further communication with USDA officials confirmed that the level of feed and residual use was key to making the revisions.

The revisions to the 2018/19 corn balance sheet by the USDA are quite puzzling for two reasons.  First, to the best of this author’s knowledge, this is the first time the USDA has used the “unmeasured” feed and residual component for a given marketing year to revise the “measured” production and ending stocks components for the same marketing year without having new data on production and/or stocks available.  This reverses a long precedent of living with unresolved sampling errors impounded into feed and residual use for corn because of the assumed greater accuracy of survey-based production and stock estimates.  Second, the USDA changed both production and ending stocks for 2018/19 in response to the apparent desire to revise feed and residual use.  This is tantamount to saying that the unresolved sampling errors in production were negative and stocks were positive. This assumes a great deal of knowledge about the sampling errors in each.  Even in the case of soybeans at the end of the marketing year when the USDA frequently makes balance sheet revisions based on data in the quarterly Grain Stocks report, changes are only made to production in the previous year, never to production and stocks at the same time.  The motivation for changing both production and ending stocks for 2018/19 is puzzling indeed.

Figure 1 provides further perspective on the nature of the USDA’s revisions to the 2018/19 corn balance sheet.  This figure plots USDA estimates of corn feed and residual use for the 2017/18 through 2019/20 marketing years as published in December 2019 versus January 2020.  The estimates published in December showed corn feed and residual use in 2018/19 surging over 5.6 billion bushels and then dropping sharply in 2019/20 to under 5.3 billion.  This trajectory did not line up with increasing livestock numbers in the last year.  It appears that the USDA simply wanted to smooth feed and residual use across the three marketing years and this required making the aforementioned revisions to production and stocks for the 2018/19 corn balance sheet.  While this is reasonable from the perspective of livestock numbers, it begs the questions of how to estimate the “right” path of corn feed and residual use based on available data and procedures.

Implications

USDA balance sheet estimates of supply and use are an important benchmark for virtually everyone in the grain markets.  It is not surprising that changes to USDA methods and procedures need to be carefully considered and communicated to market participants.  On January 10th the USDA released what appeared to be relatively minor revisions to production, ending stocks, and feed and residual use for corn for the 2018/19 marketing year.  In reality, this is the first time in recent memory that USDA has used the “unmeasured” feed and residual component for a given marketing year to revise the “measured” production and ending stocks components for the same marketing year without having new data on production and/or stocks available.  This reverses a long precedent of living with unresolved sampling errors for production and stocks impounded into feed and residual use for corn because of the assumed greater accuracy of survey-based production and stock estimates.  If this is not a one-off event, it raises profound questions about the confidence that USDA has in the accuracy of its own survey estimates of production and stocks.

References

Irwin, S.H., D.R. Sanders, and D.L. Good. “Evaluation of Selected USDA WAOB and NASS Forecasts and Estimates in Corn and Soybeans.” Marketing and Outlook Research Report 2014-01, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, January 2014.

USDA. Annual Crop Production Summary. https://usda.library.cornell.edu/concern/publications/k3569432s?locale=en



Meat’s Plate Share Grows

November 27, 2019 12:34 PM

Source:  USDA; Illlustration: Lindsey Beene


U.S. Meat Production ( Data Source: USDA; Illustration: Lindsey Benne )

After several years of steady declines, U.S. consumers are adding more protein to their plates. In 2018, U.S. red meat and poultry consumption reached a record high. That trend is expected to continue. This is coupled with growing incomes in developing countries — a huge growth area for U.S. meat products and feed grains.

“As markets become more global, economies improve and the middle class increases, consumption of protein will grow,” says Don Close, senior animal protein analyst with Rabo AgriFinance.

 

Hungry Global Customers

U.S. exports of meat and poultry have grown at an average of 4% per year during the past decade, according to USDA. Through 2024, USDA expects annual global consumption to grow by 2% for poultry, 1% for pork and 1% for beef.

“I think we will see a transition for the U.S. to become a larger exporter of animal proteins and a smaller producer of raw commodities,” Close says. “The efficiency of shipping containers full of meat is far greater compared to the inefficiency of hauling raw commodities around the globe and then converting them into protein products.” 

China “Scouring the World for Meat” as African Swine Fever Impacts Protein Markets

November 11, 2019 2:43 PM

Source:  proag.com

Bloomberg News reported last week that, “Tang Jie, who works on a pig farm, says he used to get pork from the wet market near his home every day. But he hasn’t bought any in two months. And his favorite dish, stewed pork ribs with lotus root, has been cut from the menu at his local restaurant.

“‘We can barely afford the prices,’ Tang, a resident of the southwestern Chinese city of Chengdu, said at a hog conference last month. ‘Restaurants are changing the menu, and using less pork because of the high prices.’”


“China’s Pork Consumption Risks Collapse as Prices Surge,” Bloomberg News (November 4, 2019).

“In south Beijing, small restaurant-owner Yang Yi says he’s had to risk losing customers by raising the price of his popular braised pork dish, Hong Shao Rou, by 17% to 68 yuan. He said he can’t otherwise absorb the higher cost of the meat, which spiked nearly 70% in September after hog numbers collapsed more than 40% from a year earlier because of African swine fever.”

The astonishing surge in pork prices, the staple meat for Chinese people, could yet run many more months and on the way see consumption in the world’s biggest market fall by half. The question is whether that demand will ever come back.

The Bloomberg article noted that, “At current prices, the country’s pork consumption could fall by 50%, said Cheng Guangyan, director at the farm ministry’s Institute of Food and Nutrition Development in Beijing.”

Reuters writer Sybille de La Hamaide reported last week that, “African swine fever (ASF) will cut pork output in China, the world’s largest producer, by at least 20% in 2019, the United Nations’ food agency said on Thursday, doubling the decline it had expected six months ago.”

The Reuters article pointed out that, “The World Organisation for Animal Health (OIE) forecast last week that African swine fever would spread further across Asia where it has devastated herds. It said no country is immune from being hit by the deadly animal virus.”

Bloomberg writer Tatiana Freitas reported last week that, “The ripples from the outbreak of African swine fever in Asia have reached Brazil’s market for offal.

“China, which is boosting meat imports to fill a supply gap after the hog disease decimated half its herd, just approved shipments of swine offal, or organ meats, from seven plants in the South American nation, Brazil Agriculture Minister Tereza Cristina said [on November 4th]. Meat giants JBS SA and BRF SA are among the companies granted with permissions and can start shipments immediately.”

“China Approves Brazil Swine-Offal Exports as Pig Fever Rages,” by Tatiana Freitas. Bloomberg News (November 4, 2019).

And, Bloomberg writers Tatiana Freitas and Dominic Carey reported on Wednesday that, “Brazil’s beef exports reached a record last month on soaring shipments to China, which has been opening doors for foreign meat in the wake of the African swine fever outbreak. More sales may be ahead.

“Brazil Eyes More Permissions to Export Beef to China,” by Tatiana Freitas and Dominic Carey. Bloomberg News (November 6, 2019).

“The world’s largest beef exporter expects to have more plants allowed to export to the Asian nation after winning approvals for 17 facilities in September, according to Antonio Camardelli, head of the exporter group Abiec.”

Meanwhile, Reuters writer Tom Polansek reported last week that, “Smithfield Foods’ slaughterhouse in Virginia used to carve up pork for American sandwiches and holiday dinners. But workers now box up pig carcasses to ship to China, according to employees, local officials and industry sources.

“The transformation at the Smithfield, Virginia, plant shows how the global meat industry is adapting to profit from African swine fever, a fatal pig disease that has killed millions of hogs in China and turned the world’s top pork consumer into a major meat importer.”

China’s demand for imported #pork from the US & other nations continues to accelerate as African Swine Fever spreads. https://go.usa.gov/xpbgx 

Mr. Polansek noted that, “The outbreak of African swine fever has killed up to half of China’s hog herd since August 2018 and pushed prices so high that Chinese importers are willing to pay hefty tariffs that Beijing imposed on U.S. pork as part of the countries’ bruising trade war.

U.S. pork producers say China’s losses from the disease have created a once-in-a-lifetime opportunity for sales.

“The United States exported 294.5 million kilograms of pork to China between January and August, according to U.S. Census Bureau data, more than in the whole of 2018,” the Reuters article said.

Also last week, Financial Times writer Jason Kirby reported that, “China will lift its ban on Canadian pork and beef exports, in a sign that relations between the two countries may be thawing — although experts cautioned not to read too much into the move.”

Good news for Canadian farmers today: Canadian pork and beef exports to China will resume. Thanks to Ambassador Barton and the Canadian meat industry for their work on re-opening this important market for our meat producers and their families.

11:58 AM – Nov 5, 2019

The FT article explained that, “China’s decision comes as it grapples with a homegrown pork crisis. The deadly African swine fever hit Chinese pig farms last year and has wiped out as much as half of the country’s pig population. Despite increased imports from countries such as the US, Brazil and Argentina pork prices have still almost doubled, while China still faces massive shortages.”

And, Reuters writers Hallie Gu and Dominique Patton reported last week that, “China’s state-owned agriculture conglomerate COFCO said on Wednesday it had agreed to buy $100 million of pork from European pork producer Danish Crown in 2020 to help ease a domestic pork shortage following a widespread pig disease.”

More specifically with respect to future Chinese pork demand, Reuters writer Tom Polansek reported last week that,

Global meat shippers have three years to make the most of the outbreak of a fatal pig disease in China before Chinese pork imports peak, according to a report released by the U.S. pork industry, which is competing for sales against Europe and South America.

“The forecast issued on Wednesday starts a clock ticking for companies to profit from the epidemic of African swine fever (ASF), which has killed up to half of China’s hog herd since August 2018 and pushed Chinese pork prices to record highs.”

On Friday, Reuters writer Dominique Patton reported that, “China’s pork imports will reach record levels of as much as 4.6 million tonnes next year, Dutch financial services firm Rabobank said on Friday, as domestic output falls to a historical low following a devastating disease outbreak.

“China’s pork imports are already set to surpass previous records this year, reaching between 3.1 million and 3.3 million tonnes including offal, the bank said in a report, up from 2.1 million tonnes last year.”

The Reuters article added that, “Rabobank estimated pork meat imports of between 2.3 million and 2.6 million tonnes next year, or a quarter of global trade, with offal imports of between 1.5 million and 2 million tonnes.”

 · Nov 5, 2019

U.S. #pork exports to #China in September totaled 44,185 tonnes, the smallest in 3 months but record for the month. YTD exports to China hit 339k tonnes in Sept, up 89% on the year and already 54% larger than in all of 2018.