US feed prices update

US feed prices have been dropping significantly since the record 2013 corn harvest. This is bringing the US milk:feed price ratio higher.  Feed prices are expected to remain at relatively low levels for most of 2014. The latest USDA crop production report surprised the market with a downwards revision for the 2013 corn harvest. Though this has lead to temporary price increases, it is not enough to threaten the massive supply of corn this year. The record corn harvest in 2013 caused a 40% year on year corn price drop for the end of the 2013 year. The USDA also surprised with an increase in wheat stocks estimates. Adding to large harvests from China and the Black Sea region, this lead to significant drops in the Chicago wheat futures prices.  Though lately there had been some support for corn prices, with strong exports to China and good demand from ethanol producers, the outlook for this now looks to be wavering. There has been a significant volume of dried distiller grains, a by-product of ethanol production, being rejected at the border going into China due to genetically modified grain contamination. This is both a signal that China has reasonable feed supply, and that ethanol production may ease as the value of the byproduct is dropping. Despite the decrease in corn stock estimates, if feed, export or ethanol demand drops much further this year prices are expected to lower even further from this point.