Feeding Hogs At $6 Corn: The USDA Weighs In

     This past week I priced a new tractor and I considered reconditioning another one.  It’s that time of year again, enhanced by a winter with no snow that many of us are preparing for spring planting.  If I wake up next week and there are 2 feet of snow on the ground, maybe I will go back into winter hibernation.  Something tells me that heavy snow is coming the 1st week in March.  Just tell everybody, an old-timer told you.

I felt a bit like an old timer this past week.  Increasingly when I am asked to speak at producer meetings, the number of gray hairs in the audience is so much less than it used to be.  That is sad on one hand but welcome on the other.  The last few years have been significantly profitable for many in the agricultural complex.  Seeing many young people in front of me, listening intently is always a good thing.

I was very interested a few weeks ago when a hog producer told me at a producer meeting in Courtland, Ontario that he didn’t want to see $3 corn again.  I was a bit shocked by that and asked why.  He simply told me if corn got cheap again there will be all kinds of people back into hogs and they would start losing money again.  This past week I spoke at the Middlesex Pork Producers annual general meeting in Coldstream, Ontario and I asked that question again.  One hog producer told me that was true before I started speaking.  So I repeated it during my presentation and nobody threw any chairs at me.  The question is, will corn get cheap again ruining the plans of many hog producers throughout the corn belt.

I’m still reeling a bit regarding that cheap corn comparison and chief hogs.  However, maybe it is a new benchmark in the corn and hog relationship.  People love bacon and ribs, the great challenge for hog producers is to get more of that from the pigs versus everything else.  Needless to say, I don’t know if $6 corn will be part of that equation.

Last Thursday the USDA chimed in once again with their monthly supply and demand report.  The USDA actually reduced US domestic corn stocks to 801 million bushels down from 846 million in January.  US ending soybean stocks remained at 275 Million bushels and domestic wheat stocks were reduced to 845 million bushels down from 870 million in January.

The world stocks for corn and soybeans were also reduced.  Corn came in at 125.35 MMT versus 128.14 MMt in January.  Soybeans were reduced to 60.28 MMT down from 63.43 in January.  The USDA reduced the Brazilian crop down to 72 MMT from 74 MMT in January.  Argentinian soybeans were also reduced to 48 MMT from 50.5 MMT reported in January.  Look for the USDA to further reduce those South American production numbers in subsequent reports as many analysts think they were not cut enough.

There was not the gnashing of teeth over the report like there was in January.  In fact many analysts felt the report was neutral as South American weather had been factored in for many weeks.  Despite that, it is very clear that ending stocks for corn continue to decline, inch by inch, every month.  The corn ending stocks to use ratio actually decreased to 6.3%, the 2nd tightest on record since 1995.

So will my hog producer friends get their $6 corn?  It’s hard to say, especially with the different dynamics between old crop and new crop corn.  It would seem that end-users are taking the wait and see attitude regarding new crop production.  New crop bids in Ontario have been around the $5 bushel mark.  Is completely obvious to many that producers are wanting to plant a huge corn crop this spring.  We have all heard and read the hype, with some publications actually saying 97 million acres of US corn in 2012!  I say that will never happen, at least in the near future.

There is quite a bit in the mix here as we move on.  USDA put the ethanol demand figure at 5 billion bushels of corn even though the daily grind statistics have been implying a 5.2 or 5.3 billion acre figure.  We are also seeing a small window of US economic growth taking shape, which is always good for the grains.  Yes, the European train wreck still inches forward every day but the market is used to that.  We have got a whole production season in front of us and we all know how difficult that can be.  With corn, “risk on” is the buzz phrase for 2012.

Of course looming in the distance is the March 31st USDA prospective plantings report.  Yes, it represents another “mother of all reports”.  Big limit moves seem to surround those types of reports.  The question is will the noncommercial speculative capital get back on board?  I certainly hope so.  It’s been a long ways down from August 2011 highs.  I could use a little excitement going forward.