USDA Grain Stocks Inventory
Good For Feeders, Not Farmers

While bearish for grain farmers, the grain stocks report at the end of September could mean more profits for cattle feeders.

The day the stocks report came out, Sept. 30, the futures markets may have been oversold, says Dr. Kim Anderson of Oklahoma State University.

"They might be overdoing it," he says. "We only had a three percent increase over last year on our stocks estimate. Of course, that's the highest since the 1987-88 crop year. I think corn is probably dragging it down pretty hard. It's 37 percent higher than last year. Soybeans are 74 percent higher than stocks last year, but soybean prices are up slightly today. It's hard to figure out this market."

Anderson says the wheat market may have been reacting with the corn, but the price movement following the stocks report was probably more of a reaction to usage, how much wheat's been used since June 1, compared to last year.

On the Sept. 1 report, it was 10 percent less than in 1998. Since Sept. 1, Anderson says, export demand has been in the tank. All wheat exports are 10 percent lower than last year. Wheat sold but not shipped is 27 percent less than last year.

"Hard red winter wheat, sold but not shipped, is 35 percent less than last year," he says. "I think the market is reacting to the dismal demand for wheat. Also, with corn stocks up like they are, with corn prices in the tank, there's not going to be much feeding of wheat. I think they're reacting to that demand side and anticipated demand right now."

Less wheat from this year's harvest has been moved out, he says, than would be normal.

"I believe producers took their LDPs when it was up in the 50 and 60-cent range," Anderson says. "I think the ones who can afford the risk are holding the wheat for higher prices. I'm still cautiously optimistic on price outlook, and I think most producers are. Of course, I believe we're all getting nervous now."

Anderson says corn prices in a large crop year normally bottom out early.

"We did bottom out in mid-July, but the corn price trend is down now," Anderson says. "I must confess that I didn't anticipate the 30 to 40 cent decline in corn prices that we've seen over the last month and a half."

Right now, he says, the whole grain complex is in the doldrums.

"It's hard to see the light at the end of the tunnel," Anderson says.

For feedyards, though, the light at the end of the tunnel is bright. Anderson says now is probably the time to start locking in low-cost corn.

"I think we're probably relatively close to the bottom," he says. "You look back to where we were in July. We were another 20 cents lower. I would say it's doubtful that we're going to go down that low. It's possible. If I were a corn user, I would start looking at locking some of that price in."

Jim Gill, with the Amarillo-based Texas Cattle Feeders Association, says that although the grain stocks report was bearish on the futures market, many elevators south of the Canadian River are short on corn because of the lack of planting in the region. The yields in the area are average to slightly better than average compared to 1998, Gill says.

TCFA figures show the price of corn, f.o.b. the elevator, at $3.74 to $3.79 a bushel (basis one to four cents) on the Texas North Plains and from $4.08 to $4.13 a bushel (basis 20 to 23 cents) on the South Plains.

"I think the thing that we've got to watch real close, too, is the basis," Anderson says. "We've got to be careful which marketing alternatives we use."

The U.S. Department of Agriculture says average corn prices across the nation could match last year's, which were the lowest in a decade.

"We're looking for about $1.95 for the 1999-2000 year, which would match the $1.95 producers saw in 1998-99," says Jerry Bagley with USDA. "It would be the weakest price aside from 1998-99 since we've seen since 1987-88."