More Sales to China and Worsening U.S. Crop Conditions
Update for September 3rd, 2020
The national corn crop ratings fell again this week. The overall GD/EX rating fell by -2% to 62% and Iowa, the top corn producing state in the U.S. saw ratings fall for the 8th consecutive week. It’s common to see the crop ratings begin to diminish at this point of the growing season but the extreme weather conditions that have led to the deterioration in the corn crop also has traders heavily debating the final yield and total production numbers for the 2020 growing season. Overall 12% of the corn crop is rated as mature vs the average of 10% for this date. Only two states-Missouri +4% and Kentucky +1% saw increases in the GD/EX ratings. Listed are a few of the states that were unchanged or received rating decreases:
Ohio, South Dakota and Texas were left unchanged from a week ago.
Iowa fell by -5% to only 45% rated as GD/EX, this rating is 17% lower than last year.
Kansas down -5% to 56% GD/EX.
Minnesota GD/EX rating fell -3% to 79%.
North Dakota declined by -3% to 64% GD/EX.
Illinois corn ratings fell by -2% to 79% GD/EX.
Nebraska GD/EX rating fell by -2% to 64%.
Indiana ratings were lowered by -1% to 63%.
Wisconsin also saw ratings lowered by -1% to 80% GD/EX.
U.S. corn continues to see active buying from China. Ongoing food security concerns within the nation signals additional purchases of U.S. corn are very likely. Soaring corn prices at Chinese corn auctions has fueled fears that the country is beginning to face its first corn shortage in years. According to analysts surveyed by Reuters, current projections are indicating that the country may face a shortfall of 30 MMT during 2020/21. An executive with a Chinese state owned trading firm told Reuters, “It is certain that there will be a corn shortage in the future, and we would need to import a lot next year.” The Phase 1 corn quota is 7.2 MMT but considering the extreme domestic shortfall within the country, U.S. traders expect China will import more than originally agreed to.
The U.S. soybean crop has also suffered significant crop deterioration. The latest GD/EX rating showed a -3% decrease and now sits at 66%. Some of the states with significant reductions:
Louisiana fell -28% this week to 31% GD/EX compared to 83% GD/EX last year.
Kansas was reduced by -11% to 56% GD/EX.
Iowa received a -6% reduction to 50% GD/EX.
Worsening crop conditions, substantial Chinese buying and a U.S. Dollar that is now at a 2 year low are all adding strength to the soybean market.
Once again private firms will begin releasing their latest estimates. Stone X released their survey based yields on Monday which showed lower expectations for both corn and soybeans. Their corn yield estimate fell by 2.8 bushels per acre from the August report and soybean yields were lowered by 1.3 bushels per acre. Their Iowa corn estimate was cut by --10 bushels per acre and soybean projections were reduced by -5 bushels per acre. Illinois also received a sizable yield reduction with corn lowered by -8 bushels per acre and soybeans fell by 3.5 bushels per acre. Total corn production for 2020 was estimated at 15.085 billion bushels. Stone X noted these figures were determined using NASS acreage data which does not include adjustments for the acres lost in the August storm.
Crop consultant Dr. Michael Cordonnier has reduced his estimated U.S. corn yield by 2 bushels to 176 bushels per acre and has also lowered his soybean estimate by 1 bushel per acre to 51. These yield adjustments lowered the total corn crop to 14.69 billion bushels and reduced the total soybean crop to 4.23 billion bushels.
The photo above taken above shows a central Iowa farmer disking under 300 acres of corn that was devastated by the August derecho. The Des Moines Register interviewed the farmer, Chad West, who had nearly half of his 4.500 acres of corn and soybeans effected by the hurricane force winds. To make matters even worse, West told the Register that now his acres that were not damaged by the wind storm are burning up from the extremely dry and hot conditions. He also added that he will likely need to disk under an additional 400 acres of flattened corn acres in the coming days.
Central Iowa farmers are not alone, the drought has now expanded and encompasses approximately three-fifths of the state. Most areas in Iowa that are not currently effected by some stage of drought are labeled as abnormally dry. Very little of the state has not been impacted by either the drought or the derecho. The chart shown below gives us a better idea of where exactly the drought is developing and to what level.
State climatologist Justin Glisan said last week that the expanding drought is the most severe the state has experienced since the one that lasted 151 weeks from 2011-2014. Glisan has observed that over the past 30 years the Midwest has seen an increase in the both the frequency and intensity of droughts in the region. He added that the drought of 1988 and the major drought of 2012 were both expansive. A smaller scale drought that developed in 2018 involved Missouri and southern Iowa and was caused by a high-pressure ridge that sat over most of the state of Missouri. Then during the 2019 growing season a moderate drought develop in portions of central and eastern Iowa while farmers in western Iowa were dealing with extensive flooding. So while not everyone is always effected by a particular drought each time one develops, you can see that even within the past 20 years a fairly sizable portion of the country has experienced some level of drought conditions.
Following the above normal temperatures of Labor Day weekend a drastic cool down is expected and is intensifying as we get closer. There are now watches issued for frost in northern locations. While lower temperatures and chances of rain enter the forecast for next week, it will likely be too late to provide much help. The second set of maps shown below take us from September 9th through the 16thand show a continuation of below normal temperatures but precipitation is expected to fall below normal during the period.