Commodity Market Outlook: Corn, Forage, Wheat & Cattle

Commodity Market Outlook: Corn, Forage, Wheat & Cattle Stephen R. Koontz Professor & extension economist Department of Agricultural & Resource Economics Colorado State University Stephen.Koontz@ColoState.Edu http://webdoc.agsci.colostate.edu/koontz Colorado March, 2016 Outline Long term Price Outlook Corn Forage Wheat Cattle Sheep & Lambs Others Short term Price Comments. General Economy I would love to stand here and tell you, $5.00 corn, $8.00 wheat and $3.00 calves for the rest of your life. But this is a competitive economy and agriculture is a competitive industry. 1

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Summary High prices in 2007 2013 were the result of Strong demand. Supply disruptions. World wide volatility but by underlying growth. Moving forward 2016 2020?: Plentiful supplies of everything. Weak to little demand growth. Strong dollar. It s not the 1980 s but there are similarities. Weaker prices & margins. 4

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Weekly Corn Contract $8.00 $5.00 The trading range for corn is $3.35-$4.50/bu. Except 8

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DEC 2015 Corn Contract Blue was the correct trading range & green can happen again but not for long 10

Bottom line on corn basis: strong for as big as the crop was. Good demand and movement. Big weak basis in regions with excellent sorghum crop. 11

Forecast $3.65-4.20/bu DEC 2016 Corn Contract We will trade $3.75-$4.05 until there is a reason not to. We could move up to $4.10, $4.20, & $4.45 but Sell rallies 12

Corn Outlook Market price is where fundamentals say it should be. Acreage next year? Rotation with soybeans? Cash flow & debt? Demand? Trade? Storage? Basis? Price outlook 16/17 @ $3.65 $4.00/bu. And we ve had the two big crops. Aggressive sales on any weather driven rally. Resistance @ $4.20 & $4.50. Weekly KC Wheat Contract 13

Monthly KC Wheat Contract 14

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Bottom line on wheat basis: weak for the reduced acres. Poor demand and movement. JUL 2016 KC Wheat Contract Forecast $4.25-4.75/bu 17

Wheat Outlook World: Building stocks. U.S.: huge stocks but reduced acres. World weather? But soft exports due to strong dollar. Basis? Forecasts: JUL 2016 @ $5.00 with range $4.50 5.25/bu. And aligned with fundamentals. Aggressive sales @ $5.20 & $5.75. Likely storage opportunity into late 2016. 18

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Mil. Tons 120 US ALL HAY STOCKS December 1 110 100 90 80 70 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Data Source: USDA NASS, Compiled & Forecasts by LMIC Livestock Marketing Information Center G-NP-22 08/12/15 Mil. Tons 30 US ALL HAY STOCKS May 1 (Beginning of Crop Year) 25 20 15 10 5 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Data Source: USDA NASS, Compiled & Forecasts by LMIC Livestock Marketing Information Center G-NP-21 08/12/15 20

PERCENT CHANGE ALL HAY ACRES (2013-2014) U.S. Total: 1% Livestock Marketing Information Center Data Source: USDA-NASS 2/2/2015 GL_GR310 Greeley, CO Thu Feb 25 2016 USDA-CO Dept of Ag Market News Colorado Hay Report Compared to the last week, hay movement light with prices steady on grass hay and lower quality alfalfa. Very little movement on Dairy quality alfalfa. Demand light. All prices reported are FOB at the stack or barn unless otherwise noted. Prices reflect load lots of hay. Northeast Colorado Areas Alfalfa Large Squares: Utility 85.00 DEL. No reported quotes for all other classes of hay. Southeast Colorado Areas Alfalfa Small Squares: Premium 200.00 (6.45-6.90 per bale). Sorghum Sudan Round: Good 85.00. No reported quotes for all other classes of hay. San Luis Valley Area No reported quotes for all other classes of hay. Southwest Colorado Areas Grass Small Squares: Premium 245.00 (8.00 per bale, Certified Weed Free). Orchard Grass Small Squares: Premium 265.00 (8.00 per bale). No reported quotes from all other classes of hay. Mountains and Northwest Colorado Areas No reported quotes for all other classes of hay. 21

Forage Outlook Plentiful except for high quality. Excellent hay: Alfalfa $150 $175/T. Grass $85 $100/T. Low quality hay: <$65 $85/T. Back to more small bales Other Crops Oilseeds: The one market with long term growth potential. Record large crop last year in S. Am. Sorghum: Superb crop last year. Growth will depend on feed use & exports. Millet: Domestic demand growth potential. Decreased acres but increased production. Malting barley: Excellent premiums past several years. Weather related but weather other places. Potatoes: Excellent production this year. Soft trade. Sugar: World versus domestic prices. Substantial long term world pressure on prices. Hops: This is the only commodity that I hear persistent discussion of limited availability 22

Weekly Live Cattle Contract This market is looking for a bottom trading range $120-145/cwt. $170 Monthly Live Cattle Contract 23

Weekly Feeder Cattle Contract This market will drift lower trading range $130-170/cwt. $240 Monthly Feeder Cattle Contract 24

Cattle Outlook Fed cattle market will trend down: Domestic demand was strong. International demand & trade are weak. Abundant supplies of competing meats. Feeder cattle and calf prices will weaken for the next several years: Herd building. 25

OCT 2015 Live Cattle Contract OCT 2015 Feeder Cattle Contract 26

Index Value 120 RETAIL ALL FRESH BEEF DEMAND INDEX Annual, Using CPI 1990=100 100 80 100 96 91 91 86 86 82 79 75 75 77 80 81 85 88 83 85 85 80 77 75 77 79 81 86 92 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Data Source: Bureau of Labor Statistics, USDA ERS, Compiled & Analysis by LMIC Livestock Marketing Information Center Index Value 120 RETAIL ALL FRESH BEEF DEMAND INDEX First Quarter, Using CPI 1990=100 100 80 100 95 94 91 93 86 87 83 86 87 80 75 77 80 83 83 85 85 82 81 76 74 77 79 80 80 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Data Source: Bureau of Labor Statistics, USDA ERS, Compiled & Analysis by LMIC Livestock Marketing Information Center 27

Index Value 120 RETAIL ALL FRESH BEEF DEMAND INDEX Fourth Quarter, Using CPI 1990=100 100 80 100 94 93 94 93 88 87 85 81 76 74 76 79 80 85 87 87 88 89 83 82 75 78 78 82 83 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Data Source: Bureau of Labor Statistics, USDA ERS, Compiled & Analysis by LMIC Livestock Marketing Information Center 1000 MT 6 US EXPORTS OF BEEF MUSCLE CUTS Weekly 5 4 3 2 1 0 1/4/14 7/5/14 1/10/15 7/11/15 1/9/16 Canada Japan Mexico Korean Rep. Data Source: USDA AMS & USDA APHIS Livestock Marketing Information Center 02/12/16 28

1000 MT 19 TOTAL U.S. EXPORTS OF BEEF MUSCLE CUTS Weekly 17 15 13 11 9 7 1/5/13 7/6/13 1/4/14 7/5/14 1/10/15 7/11/15 1/9/16 Data Source: USDA FAS Livestock Marketing Information Center 02/12/16 Mil. Pounds 375 350 325 300 275 250 225 200 175 150 125 US BEEF AND VEAL IMPORTS Carcass Weight, Monthly JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Avg. 2009 13 2014 2015 Data Source: USDA ERS & USDA FAS Livestock Marketing Information Center I-N-15 02/09/16 29

Mil. Pounds 250 240 230 220 210 200 190 180 170 160 150 US BEEF AND VEAL EXPORTS Carcass Weight, Monthly JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Avg. 2009 13 2014 2015 Data Source: USDA ERS & USDA FAS Livestock Marketing Information Center I-N-16 02/09/16 Mil. Pounds 200 US NET BEEF IMPORTS Carcass Weight, Monthly 150 100 50 0 50 100 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Avg. 2009 13 2014 2015 Data Source: USDA ERS & USDA FAS, Compiled & Analysis by LMIC Livestock Marketing Information Center I-N-31 02/09/16 30

Bil. Pounds 3.5 US BEEF AND VEAL NET IMPORTS Carcass Weight, Annual 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.5 1.0 1992 1995 1998 2001 2004 2007 2010 2013 2016 Data Source: USDA ERS & USDA FAS, Compiled & Analysis by LMIC Livestock Marketing Information Center I-N-28 02/09/16 Mil. Head 46 45 44 43 42 41 40 39 38 37 36 JANUARY 1 TOTAL COW INVENTORY U.S., Annual 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 Data Source: USDA NASS Livestock Marketing Information Center C-N-02A 02/01/16 31

Mil. Head 42 CALF CROP July Estimates, U.S., Annual 41 40 39 2015 = 34.3 Million Head +2.3 Percent 38 37 36 35 34 33 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Data Source: USDA NASS Livestock Marketing Information Center C-N-18B 02/01/16 Mil. Head 7.0 HEIFERS HELD AS BEEF COW REPLACEMENTS January 1, U.S. 6.5 +3.3 % 6.0 5.5 5.0 4.5 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Data Source: USDA NASS Livestock Marketing Information Center C-N-38 02/01/16 32

Mil. Head 6.0 HEIFERS HELD AS BEEF COW REPLACEMENTS July 1, U.S. 5.5 5.0 +6.7 % 4.5 4.0 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Data Source: USDA NASS Livestock Marketing Information Center C-N-37 02/01/16 PERCENT CHANGE IN CATTLE INVENTORY U.S., January 1 4 3 2 1 0 1 2 3 4 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Data Source: USDA NASS, Analysis by LMIC Livestock Marketing Information Center C-N-48 02/01/16 33

$ Per Cwt 275 250 225 200 175 150 125 100 75 50 AVERAGE ANNUAL CATTLE PRICES Southern Plains 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 500 600lb Steer Calves 700 800lb Feeder Steers Fed Steers Data Source: USDA AMS, Compiled and Forecasts by LMIC Livestock Marketing Information Center C-P-06 02/12/16 $ Per Cow ESTIMATED AVERAGE COW CALF RETURNS Returns Over Cash Cost (Includes Pasture Rent), Annual 500 400 300 200 100 0 100 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Data Source: USDA & LMIC, Compiled by LMIC Livestock Marketing Information Center C-P-66 02/12/16 34

$ Per Cow 1000 900 800 700 600 500 400 300 200 100 0 ESTIMATED AVERAGE COW CALF COSTS Total Cash Cost Plus Pasture Rent, Annual 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Data Source: USDA & LMIC, Compiled by LMIC Livestock Marketing Information Center 02/12/16 Date LMIC Cattle Price & Quantity Forecasts % Change Production % Change Consumption Fed Cattle 7 800# Feeder 5 600# Calf 2015: VI +1.4 0.6 $127.72 $177.29 $203.51 2015 2.3 0.0 $148.12 $208.21 $251.25 2016: I +3.1 +3.0 $136 137 $161 163 $195 197 2016: II +1.3 +0.1 $138 140 $165 169 $197 202 2016: III +4.1 +0.9 $132 135 $160 165 $196 203 2016: VI +2.7 +2.0 $131 135 $158 165 $189 198 2016 +2.8 +1.1 $134 137 $161 165 $194 200 2017: I +5.2 +1.5 $131 136 $158 166 $191 201 2017: II +4.9 +0.3 $133 140 $159 168 $192 204 2017: III +3.3 +0.9 $127 134 $155 165 $187 200 2017: VI +4.8 +1.4 $127 135 $152 163 $181 195 2017 +4.5 +1.0 $130 136 $157 165 $190 198 35

OCT 2016 Live Cattle Contract OCT 2016 Feeder Cattle Contract 36

Input Market Outlook Summary Soft everything. Even land valuations Risks moderating. Softening fuel costs with no volatility Fertilizer Chemicals Supply industries remain operating undercapacity & unwilling to take risk. We haven t had this much cheap energy in a while. Let s see what happens. $150 Weekly Crude Oil Contract $35 $40-$60 37

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Percent Change 2.50 2.00 1.50 1.00 0.50 0.00 0.50 1.00 1.50 2.00 2.50 QTRLY GROSS DOMESTIC PRODUCT (GDP) Real Dollar (2005) Change from Previous Quarter 2000 2002 2004 2006 2008 2010 2012 2014 Data Source: Bureau of Economic Analysis, Compiled & Analysis by LMIC Livestock Marketing Information Center 11/13/15 Percent 11.0 U.S. UNEMPLOYMENT RATE Seasonally Adjusted, Quarterly 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Data Source: Bureau of Labor Statistics, Compiled & Analysis by LMIC Livestock Marketing Information Center 11/13/15 41

Index 120 Domestic U.S. Consumer Confidence Monthly, Index year 1966 = 100 110 100 90 80 70 60 50 40 Jan 78 Jan 81 Jan 84 Jan 87 Jan 90 Jan 93 Jan 96 Jan 99 Jan 02 Jan 05 Jan 08 Jan 11 Jan 14 Data Source: Thomson Reuters/University of Michigan Livestock Marketing Information Center 08/11/2014 93/76 = 1.224. So foreign buyers of our commodities face a 22% increase in prices before even they get a chance to buy the commodities. It s not as bad as in the early-2000 s or the entire 1980s. But it s worse than the Great Recession. 42

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Weekly S&P 500 Index Contract 45

Trends Summary 2007 14 were due to demand growth & weatherrelated supply shocks. Caught up & recovered from both. Return to more normal prices & margins. Plentiful supplies & stocks of everything. Strong dollar & weak trade. Soft international economies. Cheaper energy & fertilizer & rent(?) & seed (??). Back to cost control knitting. Outlook Summary Corn: $3.50 3.85/bu. for 2016/17. Acres & weather? Hay: if you have a bidder then sell it Wheat: $4.00 4.75/bu. for next harvest. Cattle: A different kind of wow Fed: $125 140/cwt. Feeders: $145 165/cwt. Calves: $175 200/cwt. Sheep & Lamb follow beef & other meats. 46

Contact and Link Information Stephen.Koontz@ColoState.Edu http://webdoc.agsci.colostate.edu/koontz/ 47