Market analyst: Crops improve, but from where?

07/17/19 — Markets have been erratic since the June 28 acreage report, which ignored the obvious prevent planting that occurred in all states except the Dakotas. But the direction ultimately has been down as temps warmed and soggy soils dried out in the Corn Belt.

This is quite the interesting situation. We have an improving crop in the field from the horrible start we had, with drying out in central Corn Belt soils allowing crops to grow more ‘normally’ than we started the year. However, the ratings are suggesting corn yield potential is 170 bu/acre, only 4 bu below trend. If you look at U.S. crops, though, they don’t look even close to average. Some looks great on the lighter soils, but heavy soils look quite bad yet (but improving). We also have acreage planted numbers that are way too high, with USDA set to correct those numbers once in August, and probably again when they get the FSA numbers (which are not a survey but nearly a population count). And the big variable left this year — frost date. Corn had 6% of the crop left to emerge July 2, and soybeans 17% left to emerge as well. So some will freeze, but the question is how much damage will occur? A frost date two weeks early vs. two weeks late is a lot of production difference. For now, the markets are going down due to improving growing conditions. But improved won’t matter much if it’s not mature by the first frost date.

Weather forecasts are more consistent now, with mostly below normal precip and above normal temps the next two weeks, with some exceptions. The exceptions are that the far northern Corn Belt will see above normal precip along with the southeast U.S./Delta most of the 14 days along with below normal temps in the Delta.

Crop progress out July 15 showed corn and soybeans had a 1% increase in the G/E rating, corn now at 58% rated G/E and soybeans 54% G/E. The increase resulted in a continued improvement in yield potential, with corn up 2.5 bu/acre to 170.26 bu, with soybeans up 0.51 bu/acre to 47.7 bu/acre. It’s surprising that as late as the crop was planted, that we are getting that close to the ‘trend’ yield in both corn and soybeans. Progress is way behind normal, though, with silking at only 17% corn (25% behind normal), and soybeans 22% blooming (27% behind normal). So we need a lot of heat and a late frost to get this crop to maturity. There still is 5% of the soybeans that haven’t even emerged yet!

Cotton conditions improved 2% to 56% G/E, with sorghum conditions improving 1% to a huge 74% rated G/E — well above last year’s 47% rating. So some areas have benefitted from the cold/wet spring (typically dry areas). Winter wheat is 57% harvested, 14% behind normal but the weather has been fantastic for winter wheat harvest (little rain and lots of heat). HRS wheat ratings dropped 2% to 76% rated G/E, while barley was up 3% to 76% rated G/E. Oats also rose 3% to 68% rated G/E, so the crops in the U.S. for the most part continue to improve from the horrible start. But warmer weather accompanied by drier conditions in most of the Corn Belt the past few weeks have helped to dry out soils and improve conditions. We note that topsoil moisture is finally drying out, with soils rated adequate/surplus dropping 6% this week to 79% rated G/E. Subsoil also dropped 3% to 84% rated adequate/surplus, so the soil moisture levels are falling back into the levels considered ideal for crops. (It was too wet.) So with crop prospects improving, it is putting pressure on the market.

The USDA July report kicked the can down the road further, with USDA choosing to ignore the obvious prevent plant acres in Illinois, Indiana, Ohio, and Missouri and instead just report the same ‘intentions” numbers that came out June 28 in corn and soybeans. So they just assumed that all the corn still unplanted for that survey around June 9 (17%) and soybeans (about half) got planted, and reported as much along with a line that said essentially, “Lots of corn and soy weren’t really planted, but we’ll survey that in the next month and report on it in August.” Therefore, all the numbers are suspect as they simply were estimates as if every acre intended got planted (a fantasy of course). So corn carryout was increased 335 mb to 2.01 billion bu, soybean cut 250 mb to 795 mb, and wheat cut 102 mb to 1 billion bu.

It’s interesting to see soybean carryout cut 25% or 250 mb and hardly move the market. This is especially interesting when you consider USDA, even after cutting yield 1 bu/acre to 48.5 bu, is still 1.2 bu/acre too high (or about 100 mb). Also, the prevent planting in soybeans is probably 3-7 million acres, so even at 5 million would be another 250 mb reduction in production. So cut carryout another 350 mb and now things get more interesting!

Now let’s go to harvest and first frost, where 17% of the soybeans weren’t even emerged by July 2; there is a high likelihood of very low production (or zero) depending on frost date. Corn isn’t much different. Mid-June private surveys showed corn prevent plant acres in Illinois, Indiana, and Ohio at 2.7 million acres, and Missouri and many other states had significant prevented planting that wasn’t reported in the June 28 survey, too. If you subtract another 5 million acres of prevented planting from corn you cut production another 800 mb. What about the 6% acreage planted that hadn’t even emerged by July 2? Yield by harvest is highly dependent on frost date — i.e. will it be 50% of normal, or a zero? It that essentially is a loss of another 3 million acres, we just lopped off another 180 mb, and now carryout is cut in half! So there’s a lot of important fundamentals not reflected in this July report. In other words, the can is kicked down the road, and the market is left to deal with it.