Grains –
When reviewing the Fats & Oils report, implied domestic meal consumption turned out to be pretty solid during the month of Nov. We don’t have official Census trade data just yet so this is subject to change, but implied domestic meal disappearance in Nov was up roughly 8% YOY. Although we’re only two months into the 16/17 marketing year, MYTD domestic disappearance is estimated up roughly 5% from the same period last year. WASDE’s current projection is calling for “only” a 2.7% YOY increase in domestic disappearance. It appears likely to me that while WASDE’s meal export projection might still be overly optimistic, it’s likely that this can be offset by a higher domestic use estimate. We’ll also need to continue to monitor production yields.
The strong domestic disappearance of meal perhaps shouldn’t be a huge surprise considering record hog numbers. Still, the thought process up to this point has been that meal has a lot of competition around the country. As you can see in the attached charts, DDG prices have been grinding lower and the meal/DDG ratio is near recent highs. Though not pictured here, canola meal has also been widely touted as a possible replacement for meal in rations. Still, the F&O numbers imply the meal is finding a home in the domestic market for now. As noted before the meal stocks numbers in the F&O report are a bit questionable so perhaps we’re dealing with a GI-GO situation. We’ve also heard of aflatoxin issues with DDGs that likely are a) depressing spot prices due to discounts and b) preventing widespread inclusion of DDGs in rations.
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