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UPDATE for June 23rd, 2023

Weather vs Demand

Another week and another drop in crop condition ratings. Nationally the decline in corn ratings fell by 6 points from the previous week down to 55% this is the biggest drop in ratings we have seen in 30 years. Historically, there have only been 2 years where GD/EX ratings for this specific week have been lower, those being 1992 when 52% of the crop was rated GD/EX and 1988 when the national average corn rating fell to 37%.

This week’s most significant reductions in the corn crop were found in:

• Illinois- GD/EX ratings fell by 12% this week down to 36%. Only 1991 was lower at 28%.

• Iowa- GD/EX ratings were lowered by 11 points to 59%.

• Wisconsin ratings fell 16% down to 50%.

• North Dakota fell by 14 points.

• South Dakota GD/EX ratings were reduced by 12% from a week ago.

There are solid arguments for prices to rally but there are also reasons rallies may be limited. The biggest obstacle in the way right now is demand. Exports have been weak for months now and harvest of Brazil’s Safrinha crop is underway which will add more competition to U.S. corn in the global marketplace. In addition, the EPA blending volumes announced this week did not help to improve the demand outlook. A detailed chart is included. On the other side of the issue is the weather. Hot, dry, week after week with no real relief insight and dwindling crop conditions that are now amongst the top 3 worst on record for this time of year. The other two growing seasons with similar crop conditions were those of 1988 and 1992. So, looking at harvest results from those growing seasons should give us a good clue regarding what to expect this harvest, or maybe not.

• Prior to 1988 average corn yields ranged from 106 to 119.8 bushels per acre. Following that very stressful growing season though the average yield dropped to 84.6 bushels per acre, a 30% reduction in yield.

• The crop planted in the spring of 1992 endured very dry conditions through June but the pattern then changed and July and August were cool and wet. Yields that fall were record breaking with a final national average corn of 131.5 bushels per acre.

The drought year of 2012 is much fresher in everyone’s mind, so how did that year turn out in the end? Prior to that growing season the record average yield had climbed to 164.4 bushels per acre. At the conclusion of the 2012 growing season the final national average yield fell by 25% to 123.1 bushels per acre. The chart below compares our latest 2023 state-by-state crop conditions with those at this same time in 2012 and lastly what the GD/EX crop ratings were by October 1st of 2012.

Lance Honig, Crops Branch Chief with NASS stated, “Generally speaking, we've seen some declines really all along this year since ratings started several weeks ago,” Honig says. “It’s not terribly uncommon to start high and see a bit of a decline those first few weeks, but the magnitude of decline that we've seen kind of week after week has been a little bit greater than what we would normally expect to see. In fact, just this past week, in particular, nationally it doesn't always seem like that much to see a five or six percentage point drop in your good to excellent rating, but generally speaking, we don't see that much nationally in just a week's time. And so, it's not unheard of, but it's certainly not terribly common.”

U.S. soybean crop conditions also declined this week. GD/EX ratings fell from 59% a week ago to 54% this week vs the average of 68%. The portion of the crop that is rated Poor to Very Poor increased this week by 3% from 9% up to 12%. This is the worst rating seasonally we have had in 13 years. In comparison the GD/EX rating for this same week in 2012 was 56%.

Soybean demand faces similar headwinds as corn does. Huge, record-setting crops from Brazil fulfilling most of China’s needs coupled with a major blow from our EPA regarding biodiesel blending mandates puts a great deal of pressure on soybean prices. The American Soybean Association called the EPA’s final rule, “a letdown for soy growers” adding that it “threatens the success of the biomass-based diesel industry by significantly dealing back annual increases in volume obligations and failing to account for the progress being made in biofuels investment and growth.”

The map above spells out quite well what our current situation is. Exactly how depleted the subsoil moisture is, is tracked weekly in the Crop Progress report. The map shown below indicates by state the percentage of the subsoil that is considered to be short to very short of moisture. Notice Illinois’ subsoil moisture is estimated to be 83% short to very short while Iowa is at 64%.

Lance Honig Crops Branch Chief with NASS cautions everyone to remember that one good rain will not fix our subsoil moisture problems but it is also not time to declare that the U.S. corn and soybean crops are a disaster quite yet. “You can have a lot of problems early, and certainly it has an impact. I don’t want suggest that having problems early doesn’t have an impact, but you still got time to make up for some of these impacts or to offset some of these impacts. And even if it wasn’t just the making up aspect of it, there are certain stages of development that just really need moisture, a lot more. And we’re not at that stage yet.”

Wednesday the EPA released biofuel blending obligations for the Renewable Fuel Standard for 2023, 2024 and 2025. This is the first rule to follow the Energy independence and Security Act of 2007 that set blending volumes through 2022.

In December, 2022 the EPA released their original plans. Following mixed reviews and weeks of public comments the final rule was announced this week. One of the proposed changes in December was the addition of renewable electricity to the RFS. The EPA said that the plans were provided to give “clarity on how electricity would be incorporated into the RFS.” That proposal was removed from the final rule essentially taking electric vehicles off the table. Geoff Cooper, President and CEO of the Renewable Fuels Association says that he along with his members feel that the agency made the right decision by putting a hold on electricity in the RFS “until they get it right.”

Yesterday weather models, in particular the EURO started to shift towards better rain chances for key crop growing regions of the country. Iowa, Illinois, Indiana, Nebraska and the Dakota’s all show rainfall potential through the weekend as well as in the 6-to-10 and 8-to-14-day government weather outlooks.

For several weeks now the drier EURO weather models have proven to be more accurate than the much wetter GFS models. So, Thursday traders took notice when the EURO model flipped and began to show a higher likelihood of precipitation across regions that have been in severe drought. The GFS also indicates the probability of rainfall in these same areas, but the totals are drier by comparison.

Optimism is increasing regarding the rainfall potential for Saturday night and Sunday, particularly in areas west of Illinois. A short-wave has developed that is deeper and more amplified than had been expected. This will allow for a track to develop further to the south which increases rainfall potential. If the system is able to generate significant instability from the daytime heating and the narrow axis of moisture expected to arrive in western Iowa Saturday afternoon, storms will develop quickly. If this happens a complex of storms could form and move to the east southeast. As the system crosses central Iowa it will encounter drier air and less atmospheric instability across the eastern third of the state causing the storms to weaken. The scenario is very similar to the set up last weekend when storms moved across the western half of the state but then faded and died before reaching the Mississippi River as it encountered the negative feedback of dry air increased by drought.

The following 4 maps show a close up of the Corn Belt region followed by the national view for both the EURO and GFS models.

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