Hot and Dry Outlook for June and Brazil Facing a Water Crisis
Update for June 4th, 2021
The lack of rainfall across Brazil has now caused the worst water crisis the country has experienced in nearly a century. Yield projections have fallen off substantially since the start of the current growing season. On Tuesday AgRural consultancy reduced their yield estimate from 65.1 million metric ton in May down to 60 million metric ton. “In relation to the initial potential, the reduction caused by the lack of rain is already over 17 million tons.” In addition to the extensive crop damage across key growing regions, river levels are falling. Brazil is the world’s largest exporter of commodities and low river levels caused by the excessively dry conditions are raising the cost of the transportation of those goods. The Brazilian government is implementing various water saving measures in an effort to keep some shipping channels navigable. If conditions deteriorate further goods will need to be transported by truck which will increase costs in part from the rising cost of fuel. (Reuters)
Weather is a major market mover right now. Not only are crops declining in Brazil, we also have some key growing regions in the U.S. that are also enduring some very stressful growing conditions.
Temperatures are expected to hit 90-100 degrees for the next several days across a large portion of the U.S. Rainfall potential varies considerably by model. Producers in the Dakota’s are extremely concerned about crop yield potential with the ongoing presence of the drought and the freezing temps that damaged crops last weekend.
Both the GFS and EURO models are shown in the maps below. Much more weather information is featured at the end of the newsletter.
The USDA has 2 different reports this month. The first one is the WASDE which will be released next Thursday, June 10th. The highly anticipated Planted Acreage and Quarterly Stocks reports are scheduled to be announced on Wednesday, June 30th. Most analysts expect we will see substantial reductions made in the USDA’s Brazil corn production estimate in the next couple reports. This week’s weekly Crop Progress update gave us the first look at U.S. corn crop conditions for the 2021 growing season. This week 76% of the corn was rated GD/EX:
Nebraska is 88% GD/EX
Iowa has a GD/EX rating of 81%
Illinois 80%
Minnesota 76%
The most concerning state at this time is North Dakota with just 48% rated GD/EX.
Kevin Van Trump referenced the USDA crop ratings from the big drought year of 2012, that year the GD/EX ratings started out at 72%, a few points lower than the starting estimate of 76% this year. He found that by the end of July, 2012 the U.S. corn crop rating had plummeted to only 24% GD/EX, the final national corn yield average that year fell to 123.4 bushels per acre a 42.6 bushel per acre drop off from the original USDA yield projection that year of 166 bushels per acre. The most recent USDA estimate for the 2021 national yield average is set at 179.5 bushels per acre, other estimates range from 175 to 180 bushels per acre. This is likely to vary considerably based on where the USDA shows the additional acres have been planted and the weather conditions in those areas.
House Agriculture chairman David Scott wrote a letter urging President Biden to protect farmers from higher taxes. He explained that the current plan proposed by the Biden Administration could “impose a significant financial burden” on farm families and any increase in estate taxes “for those taking over farmland is untenable”. Scott has become one of the highest-ranking congressional critics of the proposed changes but he has offered to work with the administration to ensure there is no unfair burden to farm families. The White House has since said they would include an exemption for heirs that keep the farm in operation.
Ethanol production last week reached its highest level since 2019. Weekly output hit 1.034 million barrels per day, an increase of 2.3% from the previous week and only 0.6% less than the same week in 2019. Ethanol stocks increased by 3.2% on the week but still remain at their lowest seasonal level since 2014.
Temps are really heating up across the Corn Belt. A huge transition from temps just one week ago. BAMWX.com meteorologist Kirk Hinz explained that “From the Northern Plains to the Upper Midwest to the Great Lakes, we saw record low temperatures, and it made it all the way south to Iowa. Some even dropped down to the 20’s and lower 30’s, when we were only one day shy of June.” The weather pattern has completely changed now and that has them very concerned about what this may mean to crop conditions for the rest of the season. Many farmers in the Midwest and surrounding areas are forecast to see much hotter and drier weather. “Precipitation over the next two weeks is going to be pretty marginal at best. We’ve got some data going showing upper 90’s to 100-degree temperatures in the Northern Plains by the weekend. It will be incredibly hot with low humidity values, which will exacerbate things significantly.” BAMWX explains this is a “code red” for crops from Michigan to Minnesota and into the Dakota’s. They expect farmers in Nebraska, Iowa, Illinois, Indiana and Ohio will see more 90-degree days than normal for this point in the season. Precipitation will likely be very limited throughout the month of June with the best chance for rainfall during the month expected across the far southern 1/3 of the Corn Belt which includes southern portions of Illinois, Indiana and Ohio. Overall, during the upcoming 10 to 16 days we should expect to see some very hot temperatures, high humidity and scattered thunderstorm clusters.
