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Chances For Rain Return & Brazilian Production

Update for July 8th, 2021

Monday morning the USDA will release the July WASDE report. Many traders are expecting to see some modest adjustments lower on the corn and soybean estimates, others think the agency may wait until the August report to make these revisions. Carryout numbers for both old crop corn and old crop soybeans are expected to be lowered in the upcoming report, in fact the U.S. soybean supply is the tightest ever on record. New crop corn carryout is expected to increase while the new crop soybean carryout is forecast to be slightly lower than the June estimates.

USDA corn ratings were left unchanged from the previous week at 64% GD/EX vs the average of 69%. Rainfall helped to improve crop conditions in Iowa, Ohio, Michigan, Kansas, North Carolina, Wisconsin, Missouri and Pennsylvania. The GD/EX U.S. soybean rating was reduced this week from 60% to 59% vs the average of 66%. Conditions deteriorated in the states of North Dakota, Colorado, Nebraska, Minnesota, Missouri, Louisiana, Illinois, Indiana and Tennessee.

Geoff Cooper, Chief Executive of the Renewable Fuels Association is encouraging the biofuels industry to remain positive despite recent legal setbacks regarding the summertime use of E15 and small refinery exemptions. “We view both decisions as only temporary setbacks but neither will deter the industry from pressing forward and pursuing new domestic and international market opportunities.” The trade group Growth Energy has stated that they are optimistic regarding the future of ethanol. “We have an affordable, environmentally friendly product that has a high value to not only the consumer but also retailers.” When asked what they see as the longer-term impact of the court rulings that now allows the EPA to exempt small refineries from the federal mandate to blend ethanol into gasoline and the sales of E15 year-round they said, “We remain optimistic about the future of ethanol.”

The Energy Department estimated that American’s used 123.5 billion gallons of gasoline in 2020. Ethanol is blended with only a small fraction of the total gasoline consumed each year here in the U.S. and continues to fall ridiculously below the yearly usage levels that are mandated in the RFS. The National Corn Growers Association along with other ethanol groups stated, “We are working to assume continuity of E15 sales through the summer of 2021 and beyond.” “We are pursuing all available options and will work with the administration and our congressional champions to ensure we have a solution in place before the 2022 driving season.” Geoff Cooper of the Renewable Fuel Association says they are reviewing all options. “As such, we have not ruled out the pursuit of a re-hearing in the DC Circuit Court or an appeal to the Supreme Court.”

Brazilian producers are now harvesting the countries 2nd corn crop of the season with 12% completed. This is slightly below the normal harvest pace which is a result of the later than normal start they had to the planting season. AgRural has reduced their yield estimate for this corn crop from 60 MMT to 54.6 MMT which puts total production at 85.3 MMT. Other groups and governments are expected to cut their crop yield estimates for this crop as well, this season’s Safrinha crop has had stressful growing conditions all season with the presence of a widespread drought that was followed by a late season frost.

A staff member at the USDA’s foreign office in Brazil says the agency has raised their 2020/21 soybean crop acreage and production estimate to 137 MMT (same as the WASDE estimate). The office has also announced their acreage estimate for this upcoming soybean planting season that will begin later this fall. Their current 2021/22 production outlook calls for 99.58 million soy acres, slightly lower than the current WASDE estimate. This level of production will set a new world record if realized.

As expected, the trade is watching the daily weather models which is causing a lot of market volatility. Coming off from the long 4th of July holiday weekend the forecasts for the Corn Belt turned wetter tanking prices Tuesday. Both short-and- long-range outlooks this week are showing rainfall potential for much of the U.S. Corn Belt including the extremely dry areas in western Iowa, South Dakota, Nebraska and southern Minnesota. The rainfall is arriving at a perfect time as the crop is now entering the critical pollination stage for the 2021 corn crop.

David Tolleris with analyzes weather models from Europe, the U.S. and Canada. The models are not in complete agreement at this time but they are all showing rainfall for much of the Corn Belt through the first half of July. Beyond that Tolleris expects conditions will turn drier once again for the second half of the month but he does not expect that the hot temperatures baking the western U.S. will move eastward. “In order for that heat ridge to come east, we need that trough in the jet stream that’s over the Great Lakes and New England to go away. So far, that’s not happening” he said.

Beginning this weekend and running through the 6-to-10-day period, “there is going to be a large, closed upper low over Missouri and Iowa. What does that do? It creates a very unstable atmosphere.” He warns that this type of environment could lead to “significant if not heavy rains for much of the next 10 days”. In regards to the 11-to-15-day outlook Tolleris says, “There is no doubt that the rainy pattern is going to come to an end in the 11 to 15 day. When we get into the last 10 days of July, it’s going to turn dry again in the Midwest.”

Projected rainfall through next Thursday.

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