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Crop Conditions and Trade Agreement Updates

Update for July 31, 2019

Cooperative weather conditions have calmed traders and weakened crop prices. The weekly crop conditions report for corn showed a 1% bump in the Good to Excellent categories to 58%. The states of Indiana, Missouri and Ohio have not been as fortunate, crop conditions in these areas are continuing to deteriorate with all three states showing 36% or less of their total corn crop now rated as GD/EX. A few of the other big production states with lower GD/EX ratings than a year ago:

  • Wisconsin 43%

  • Illinois 44% (73% in 2018)

  • Minnesota 56% (80% last year)

  • Iowa 65%

There have been a few private crop tours taking place across the country with many of the yield estimates coming in between 160 and 165 bushels per acre. The average harvested acres has ranged between 77.0 and 80.5 million delivering a total U.S. corn crop somewhere between 12.2 and 13.2 billion bushels. These findings are considerably lower than the USDA’s previous estimates of 83.6 million harvested acres and a 166 bushel per acre average yield producing a total crop of 13.875 billion bushels. The USDA left the weekly soybean crop condition unchanged at 54% Good to Excellent. The states that are struggling with poor corn ratings are also dealing with the poorest soybean conditions. Ohio has only 30% of the soybean crop rated GD/EX, Indiana 36%, Missouri and Michigan are both at 41%, Illinois 44% (69% in 2018), Iowa 62% (74% last year) and Minnesota 60%. There are many aspects to these numbers that no one can honestly know yet at this point, variables that can make an enormous difference in the final outcome…how many acres were planted just to be eligible for the MFP payment…will the crop make it to maturity in time…and if it does what will crops planted in early to mid-June in less than ideal conditions actually yield?

Crop consultant Dr. Michael Cordonnier has been monitoring crop conditions all season and this week issued his yield estimates. He expects a 2019 U.S. corn crop of 12.08 billion bushels and has a neutral to lower bias going forward, “especially if we stay in a drier weather pattern”. His biggest areas of concern at the present time are eastern and southern Iowa, northern Missouri, northern and central Illinois on eastward all the way through central Indiana and into western Ohio and southern Michigan, he also added that the largest risk is for the approximately 40% of the corn crop that will be pollinating in August and soybeans that will be setting pods. Cordonnier estimates the 2019 soybean crop at 3.59 billion bushels which also has a lower bias going forward especially if the dry conditions continue. “The soybeans are in even worse shape than the corn. The soybeans continue to be very delayed in their development and a significant portion of the soybeans are essentially double crop soybeans this year.”

The 12th round of U.S./China trade talks yielded little progress this week. Xinhua, the official state-run press agency of the People’s Republic of China, reported the talks as “candid, efficient and constructive exchange on major economic and trade issues” which when translated boils down to little to no progress. The session in Shanghai was not extended as some previous sessions had been, in fact these meetings concluded 45 minutes early. The next high-level trade talks are scheduled for September in the U.S. At this point though it appears as if both sides are mostly focused on preventing an escalation of tensions before the 2020 presidential election. President Trump suggested last week that China is simply dragging out negotiations in the hope that someone else will occupy the Oval Office come January, 2021.

Trade talks with the Japanese Economic Revitalization Minister resume this Thursday and Friday in Washington. The hope is that a mini-deal focused on agriculture and automobiles can be reached in the next few weeks. This agreement would be a big win for U.S. producers. There has been a great deal of concern that we could lose our large Japanese market to our competitors like Canada and Australia because they are all members of the Trans Pacific Partnership (TPP) trade agreement which the U.S. is not a part of.

The vote to approve the USMCA may be brought to the House by October according to Steven Mnuchin. Treasury Secretary Mnuchin told colleagues that House Speaker Nancy Pelosi had given a verbal commitment to bring up USMCA for a vote by October. The liberal website Axios reports that the Trump Administration asked Pelosi to allow the vote as a side agreement to the budget deal which Pelosi now denies.

Reuters reported Monday that the U.S. ethanol industry is at a breaking point. The combination of the ongoing trade war with China and an increase in small refinery exemptions (SREs) from the Renewable Fuel Standard has seriously affected profit margins for ethanol producers. CEO of Green Plains, Todd Becker told Reuters that China had been a major buyer of the biofuel and because of the trade war, growth plans are on hold and profit margins are the lowest since 2015. Supplies are building, demand is slowing and the consequences will be that “some plants will slow down, some will shut down, and some will shut down forever.” EPA administrator Andrew Wheeler says that the decisions regarding the SREs for the 2018 compliance year will be made in the next few weeks. Wheeler said, “we hope to be processing them and making decisions in the next few weeks or month at the most”. At this time two of the 40 requests have been declared ineligible or withdrawn leaving 38 still pending. Sources close to the situation have said that it’s likely the final decision will be to reduce the number of SREs.

The soil map shown below indicates a significant reduction in soil moisture occurred during the month of July.

The dry conditions are expected to remain in place through the weekend for most of the central U.S., with the exception of the area along the Kansas-Missouri border where up to 5 inches of rainfall is expected.

The 6-10 day forecast now shows slightly cooler and wetter weather persisting during the first part of August.

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