This was one of the biggest one time corn purchases on record to this market and it reignited speculation that old corn crop stocks are very tight and may need some rationing until the new crop starts flowing in. The fact that the new crop has been planted relatively early in the ECB should provide some notable supplies before the end of August (official end of marketing year) and yet grain markets remain concerned about the effect some cooler weather on corn breaking above ground. But back to the China story, there has been plenty of speculation in recent months as to how big a buyer of US corn China will be in the coming years.

Not very long ago, China was a net exporter of corn to a number of Asian destinations, benefiting both from a freight advantage and lower costs. However, feed demand in China has been outpacing supply increases. In 2009/10 marketing year, China produced 163.97 MMT (~6.463 bil. Bu) of corn and imported about 1.3 MMT. In marketing year 2011/12, China corn production is forecast to increase by almost 28 MMT or 17% and yet China is forecast to import 4 MMT. The increase in Chinese feed demand has tightened feed availability for a number of Asian markets that traditionally imported corn from China. And as China now accounts for 1 out of 5 bushels of corn produced in the world, the market is now vulnerable to weather events in that part of the world more so than at any other time on record.

US cow and bull slaughter continues to run well below year ago levels. While much of the attention recently has been on packers slowing down slaughter in an effort to prop up prices ahead of Memorial Day needs, the slowdown in the cow and bull slaughter is more a reflection of the fundamentals in the beef market, improving feed conditions compared to a year ago and strong feeder cattle prices out front have changed the incentives for cow-calf producers. Indeed, US cow slaughter would be down even more had it not been for the sharp pullback in milk values, which are now pushing more dairy cows to market.

The weekly cow slaughter data, which are published with a two week lag, showed that for the last four reported weeks (Mar 18 - Apr 14), total US cow slaughter was 457,400 head, 5.5% lower than a year ago. During that period, beef cow slaughter was 210,600 head, 17.6% lower than a year ago while dairy cow slaughter was 246,800 head, 7.9% higher than a year ago. Dairy cow slaughter currently makes up about 54% of the overall US cow slaughter, the highest such proportion in more than 20 years. It is still early to proclaim a full rebuilding year as pasture conditions in a number of key states remain tenuous. A sharp deterioration in weather conditions could quickly impact beef cow slaughter. As for the dairy industry, increased productivity, higher cow number and, even more critically, slowing domestic and export demand, will likely cause producers to increase the pace of diary herd liquidation, but this time with no government money