The pace of feed use is not very transparent and is calculated as “feed and residual” use on a quarterly basis following the release of the USDA’s quarterly corn stocks estimates. The calculated rate of feed and residual use of corn was unusually low during each of the final two quarters of the 2010-2011 marketing year and the first quarter of the current marketing year. The low rate of feed and residual use appears to be at odds with the increase in the USDA’s estimated number of Grain Consuming Animal Units (Figure 2) in the 2010-2011 and 2011-2012 marketing years and the level of feeding of other grains, oilseed meals, and byproducts (including an estimate of distillers’ grains). The implied rate of total feed consumption per animal unit has declined sharply.

 

The continuation of the extremely strong corn basis over a relatively long period of time suggests that the rate of feed and residual use of corn may have been more rapid than implied by the recent quarterly stocks estimates. That scenario would imply that recent stock levels have been over-estimated and that stocks at the end of the year will be smaller than currently forecast (see previous posts here and here for more detailed discussions about the grain stocks report). That scenario would be a convenient explanation for both the strong basis and the apparent under-valuation of corn futures prices. Judging by the magnitude of the current basis compared to normal levels, futures prices may be under-valued by about 30¢.

If feed and residual use of corn has been underestimated in recent quarters, one would hope the underestimate is revealed in future quarterly stocks estimates from the USDA. There is clearly much more than the normal uncertainty about the accuracy of these estimates. Such uncertainty will make it difficult to anticipate the level of reported stocks for several more quarters. Undoubtedly, further bumps ahead.

 

Read the article at farmdoc daily.