heat feeding almost always is greatest in the summer quarter and is quite light later in the year. September 1 stocks data indicate this year’s summer wheat feeding was much less than expected at 21% less than a year earlier. Soft red wheat cash prices were below corn for most of the summer and should have encouraged wheat feeding. However, some analysts believe the large carry in Chicago wheat futures from nearby contracts to spring delivery months would encourage wheat storage rather than using it for feed. Others argue that the wheat basis could be very weak in the spring, thus possibly eliminating much of the storage return reflected in the market carry.
This sharp decline in indicated summer quarter corn and wheat feeding creates much more uncertainty than usual in projecting corn feed and residual use for the year ahead. Animal numbers and other conditions suggest June-August grain feeding should have been substantially larger. Is the lower summer use a pattern that will continue in the current marketing year? Or is it a statistical problem, perhaps indicating last year’s corn crop was under-estimated by around two bushels per acre? Others have raised questions about the accuracy of the September 1 stocks estimates. Historically, analysts have considered the grain stocks data to be more accurate than production numbers. A number of analysts a year ago indicated the unusually low summer 2010 corn feed and residual use may have been due to aggressive feeding and exports of early harvested new-crop corn in southern states. This year, the volume of early-harvested corn likely was lower than a year earlier. Early harvested 2010 corn that was fed before September 1 (essentially substituting for old-crop corn) would allow old-crop stocks to be larger on September 1. The September 1 stocks report includes only old-crop corn to avoid double-counting of new-crop corn that might otherwise be reported both in the stocks and production numbers.
We take the view that last year’s corn crop may have been modestly under-estimated. If so, September 1 corn stocks provide a larger initial corn supply than previously expected, but don’t reflect sharply reduced corn feeding in the 2010-11 marketing year. Last year’s corn feed and residual disappearance is a base for projecting corn feeding in the year ahead. Our assumption, if correct, suggests corn prices need to be high enough to reduce domestic corn feeding by about 4 to 5 percent from actual 2010-11 feed and residual use after taking into account tighter supplies of other feed grains and forage than a year ago. Expected adjustments to cut corn feeding include reductions in poultry numbers, and cattle on feed in the last half of the marketing year, as well as lighter livestock marketing weights.