Acreage Report Shocker & A Dry/Hot Summer Outlook
Update for July 2nd, 2020
Tuesday’s USDA Acreage report delivered the largest March to June drop in acres we have seen since 1983. Rich Nelson, chief strategist with Allendale commented that, “Oftentimes the corn acreage number isn’t the biggest number in this round of reports. But a 5 million acre drop from March is the 2nd largest drop since 1980 between the June and March reports.” Following the report, Chip Flory, AgriTalk host and Farm Journal economist explained that the total amount of acres for corn and soybeans combined now sits at 175.8 million, a decrease of 4.7 million from the March estimate. “When we take that much off, I think it does give us a better opportunity for higher prices in the future. This is a big decline in overall plantings.” All key corn growing states saw reductions in corn acreage except Wisconsin. The Dakota’s saw significant declines in corn acres, North Dakota fell by 25% to 2.4 million acres and South Dakota decreased by 10% to 5.4 million acres. Notice the “Special Note” which was included at the top of the Acreage report. This section details the breakdown of *Planted Acres and *Acres Left to be Planted as of the report deadline. It will be sometime in a future USDA report when we will find out exactly how many of the “acres left to be planted” will actually end up seeded.
Quarterly Grain Stocks showed a corn inventory +273 million bushel higher than the trade had expected and +22 million bushels more than at this same time last year. Soybean inventories were down -397 million bushels from last year, similar to what the trade had projected.
Current USDA weekly crop condition estimates indicate that the 2020 corn and soybean crops are doing well, in fact it is one of the highest rated crops in the past decade. This week 73% of the U.S. corn crop was rated GD/EX, up 1% from the previous week, considerably above the 56% GD/EX rating of 2019. DTN Lead Analyst Todd Hultman noted that, “Iowa and Minnesota continue to stand out with high good-to-excellent ratings of 85% and 84% respectively. Crops in Illinois, Michigan and Ohio showed significant improvements of 7 to 8 percentage points each.” NASS found 71% of the U.S. soybean crop in GD/EX condition this week, also up 1% from last week. Regarding soybeans Hultman said, “5 to 8 percentage point improvements were seen from Illinois to Ohio and included Michigan. The good-to-excellent soybean rating in Kansas showed the biggest loss, down 6 points.”
Last Friday the Wall Street Journal reported that China has told Washington that “meddling” in their matters such as Hong Kong and Taiwan could jeopardize their commitment to the Phase 1 agreement. Vice Premier Liu He told U.S. officials that leaders within China will have a difficult task justifying massive purchases of U.S. products considering the firestorm of criticism coming out of Washington. Mei Xinyu, an analysts with a think tank affiliated with China’s Commerce Ministry, said “You can’t keep asking us to buy your stuff and at the same time keep beating up on us, that’s how it works.” Some business officials told the Wall Street Journal that these warnings are quite similar to the warnings the Chinese used in the spring of 2019. At that time the U.S. was confident that an agreement was close but misread the political situation within China where opposition was growing. The deal fell apart in May, 2019 and was met with tariffs and threats, it took an additional 7 months before the next agreement was finalized. According to one “China watcher” the key sign to watch for regarding the health of the China/U.S. relationship is the tone the China’s Communist Party media uses regarding President Trump. If their media starts attacking Trump, “That’s when the U.S./China relationship has really gone off the rails”.
As the country anxiously awaits more information regarding another aid package we learned Tuesday that there are no formal negotiations scheduled for House and Senate leaders to discuss the matter until July 20th. U.S. Senator Charles Grassley (R-IA) noted that the Senate is scheduled to remain in session from July 20th through August 6th and expects the Senate will finish the aid package and have it to President Trump for signature before the session ends August 6th. When asked what to expect in the next aid package Senate Majority Leader Mitch McConnell (R-KY) said, “What I can tell you without fear of contradiction is the focus will be kids, jobs and health care….Any bill that passes the Senate will have liability protections in it.” Grassley told reporters during a regular Tuesday conference call that he is focused on ag relief in the next aid package, “We are going to try to get things in for ethanol and biofuels and help for agriculture”. He added that his other top priority is aid for livestock producers that were forced to euthanize their animals because there was no slaughterhouse capacity. He stressed he would “count on” crop insurance and regular farm subsidy programs “that would have kicked in regardless of the pandemic.”
A visit by a once-in-every-100-years tropical rain system brought to the Midwest by Tropical Depression Cristobal kept the region from recording below normal precipitation. Cristobal dragged enough precipitation into the eastern portion of Iowa, southeastern Minnesota, Wisconsin and Missouri to raise precipitation totals into the above-normal category for late May through late June. For areas not effected by precipitation from Cristobal the situation looks much different. Precipitation models for the same 30-day period show that many of these locations received less than half of their normal precipitation levels. Much of the northern tier of the Corn Belt has seen some easing from the dry conditions following heavy rain and flooding that occurred June 28-29th. Since much of this area had been running significantly behind in precipitation the rainfall was a welcomed relief but since evapotranspiration can use up to ½ inch of rain every couple of day’s one soaker will not fix the shortage.
The atmosphere is developing a stable pattern that looks very similar to a La Niña weather pattern. Ocean temps in the equatorial Pacific hover within 0.5 degree Celsius of the La Niña threshold and the atmosphere is beginning to respond to the cooling Pacific by setting up a large ridge in the middle of the U.S. When this occurs we typically see the development of hot and dry conditions. Some portions of the country may luck out next week as there will be some disturbances move across the northern edge of the ridge producing showers for the Northern Plains and the Western Corn Belt. The Eastern Corn Belt outlook is more concerning though as dry soils are already in place and the forecast calls for several dry, hot days through next week. This couldn’t occur at a worse time for the corn crop with pollination set to begin within the next couple of weeks in most areas. The long-range outlook offers little relief as models continue to show a ridge that is expected to keep hot and dry conditions around through August. If the models are correct the USDA projected corn yield of 178.5 bushels per acre may need to be adjusted.