August WASDE feeds the bears on crop markets, could it also feed the bulls (and steers) this fall?

The United States Department of Agriculture's World Supply and Demand Estimates were released‚ÄØon Friday morning (August 12, 2016) and provided a bit of a surprise to many analysts on the crop side of things. Corn yield for the 2016/17 crop year is projected at 175.1 bu/acre a 7.1 bu/acre increase over the July estimate and much higher than pre-report trade expectation of 170.8 bu/acre. The increase in yield, if it holds, will give us a record 15.1 billion bushels of corn produced. This report marks the first of the year that is based upon field surveys, many of which were taken in early to mid-July. Because the samples were taken as much as a month ago, many were not expecting a significant increase in yields until next month when the crop will be much more developed. Such a large adjustment this early in the season may be a sign of even higher yields in next month's report, given such favorable growing conditions across many of the "I" states.

On the demand side, feed and residual use was increased by 175 million bushels, a reflection of lower prices and increased production from beef, poultry, and pork. Exports were also increased by 125 million bushels. Despite the increases in demand for corn, ending stocks were revised up by 328 million bushels from a month ago. The USDA also revised the average farm price range down by $0.25/bu on the low end and $0.35/bu on the high end to $2.85-$3.45/bu.

What does a bumper corn crop mean for the cattle industry? In short, it means cheap, plentiful feed. Last month in the Cattle on Feed Report, we learned that placements were only 3% higher than a year ago. That came in much lower than expected primarily because of good pasture conditions that allowed producers to hold onto cattle for longer than they normally would have. Pasture conditions have remained favorable with only 17% of the nation's pastures rated poor or very poor in the most recent crop progress report, which will likely mean a continuation of the trend of holding calves on grass longer. At the same time that calves are being held on grass for longer periods of time, the cheaper grain has many feedlots eager to place more calves as well as growing them to heavier weights. When put together, the cheap grain for feedlots as well as good range conditions for cow/calf producers has caused a bit of a "battle" for the limited number of feeder cattle out there. That has been a big driver of the feeder cattle markets for the last month, and given the record corn crop numbers that were just reported and the potential for additional upward adjustments in the future, it looks like the bull market for feeder cattle may continue to be fed this fall by lower corn prices.

The Markets

The five-area fed steer price ended the week averaging $118.35 for live sales, and $186.91 for dressed; respectively, down $0.57 and $0.91. Nebraska feeder cattle were mixed on the week with 500-600 pound steers averaging $169.20 and 700-800 pound steers averaging $159.68. Corn was up a penny on the week trading at $2.98/bu in Omaha on Thursday.