Chad Spearman, a grain and energy analyst for CattleFax, told producers attending the NCBA Cattle Industry Convention in San Diego, the national stocks of grain supplies remain at healthy levels toward the end of the marketing year. And 2016 stocks should be just as good.
Wheat stocks to use (STU) levels are expected to be at the highest level in 15 years. Corn stocks will hold steady at 25 percent, nearly double the levels seen in shortage years 2008 to 2012. Soybean stocks “are expected to rise to some levels we haven’t seen for some time,” Spearman said.
STU levels are the remainder of grain available after a marketing year, presented on a percentage basis of total crop. When STU levels are high, prices for grains are typically low.
"When we consider prices in here for longer term, longer price trends remains lower, supplies are ample,” Spearman said, adding that "all three grains could lose a full crop before drawing down the supplies from the ample levels that weigh on prices here.”
Spearman said those supplies “are a great thing if you’re in the livestock production business. Feed costs have come down substantially.”
But those low prices are tempered against a struggling world economy, and a stronger U.S. dollar.
Wheat exports will decline with so much of that grain available worldwide, and soybean exports will also drop – due to lower buying demand from China.
In addition to cheaper protein and energy feed costs, producers can expect to see low prices on hay as well. Good weather conditions have helped hay production rebound sharply since 2012, Spearman said. “So we’re seeing those prices come down substantially and we’d expect that will be a supportive factor down to the cow-calf sector in terms of input costs.
“Other hay and alfalfa prices are expected to decline to 6 and 16 percent, respectively, for the current marketing year that will end in April.”
As for the corn market, STU levels have jumped from 6 percent in 2012, when corn prices broke record levels, up to levels above 12 percent.
Those levels should be maintained through spring, when acreage and plantings are planned around weather concerns. Spearman said STUs should go from 13 percent to 11 percent.
“If we see STU go from 13 to 11, that’s going to keep major resistance for spot corn. That’s going to keep major resistance at around $4 to $4.10 per bushel. And maintain the risk back toward $3.35 to $3.45 going on forward into the spring.”
The changing ethanol demand for corn now shows 35 to 40 percent of the corn market tied to energy markets, Spearman noted. And with energy prices dropping, including ethanol blends for gasoline, the tighter demand has weakened.
Unleaded gas futures, or RBOB prices, were at $2.50 to $3.50 in the days when gas at the pump reached $4 per gallon. Today RBOB prices are $1.25 and should be capped at those levels, unless changes come in weather.
On the acreage estimates, corn will see 1.5 million more acres, going to 89.5 million, with soybean up another million acres to 84 million, and wheat declining 2.7 million acres down to 51.9 million total.
The corn acreage for the new marketing year will see some steady trend line production, with STU levels down marginally to 11 or 12 percent by year’s end.
“We’d end up with a supply that’s basically steady or a little larger than this year. But we do expect total usage to grow, especially supported by the livestock production side.”
Spot futures prices averaged $3.77 in 2015, and aren’t expected to move far off that level, with CattleFax estimating $3.75 for a 2016 average. The narrow range in terms of corn prices was peculiar given that the $3.77 average was just barely above the daily low close price of $3.48.
“That’s only 8 percent below the annual average, that’s the smallest decline from the annual average to the calendar low in 45 years. If we average a very similar level for 2016, the risk to the market still remains around that $3 to $3.35 a bushel. But without some production issue, we’re going to be limited to $4 dollars (as a high price).”
As for energy prices, the increase in global crude production “has been massive” and continues to outstrip demand. “Now oil prices are so low, we’re concerned about the economy. We’ve got an ample supply, but now the concern is why aren’t we using it up?”
Driving patterns add to that dynamic, as Americans’ miles traveled per capita began declining in 2008 and continue to break lower. On an annual basis, the U.S. saw miles traveled on an annual basis drop for nine straight years.
“We’re seeing that buyback of demand,” Spearman said, “and we’re seeing miles traveled start to pick back up,” 1 to 2 percent for the year.
Production is expected to drop somewhat to 9.1 million barrels per day (from 9.3 million in 2015). CattleFax is forecasting crude oil prices to drop from $49 per barrel in 2015, to anywhere from $48 to $25 per barrel. That will keep retail gas prices moving down to $1.90 to $2.40 per gallon, and diesel in the range of $2.10 to $2.65.
“The key being, at the high end, all of those prices do not even achieve what we averaged last year,” Spearman said. “There will be incentives there for usage.” 
PHOTO: Chad Spearman provides an outlook for grain prices in the coming year. Staff photo.
Please visit our other 2016 NCBA CattleFax articles:
CattleFax at NCBA: Price shock period is closing
CattleFax at NCBA: El Nino projected to relieve drought conditions
CattleFax at NCBA: Production factors still positive
CattleFax at NCBA: Devaluing currencies and its affect on US trade
