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USDA Worksheet and 2021 Drought Outlook

Update for January 8th, 2021

Next Tuesday, January 12th, 2021 the USDA will release their January WASDE, Crop Production and Quarterly Stocks reports. Traders are looking for friendly numbers the estimates are shown below.

Source: USDA, Reuters, StoneX

Most bulls are expecting the USDA to reduce the U.S. corn crop by -200 to -400 million bushels which would put ending stocks in the ballpark of 1.3 to 1.5 billion bushels. A decrease of this magnitude would certainly add to the importance of South America’s second crop and the upcoming U.S. weather season. Funds are holding record long positions (862,000 at yesterday’s close) and had eclipsed the massive position of 719,000 contracts held in 2010 and 2012.

The trade has been anticipating a reduction to stocks for some time now which has been a catalyst for the Fund’s long positions and price rallies across the board.

But what is interesting, or concerning depending on how you look at it, is the price difference between 2012 bushels compared to 2020. In August of 2012 spec funds held 342,000 contracts and the price of corn hit over $8.00/bushel. This time around the milestone was attained with corn under $5.00/bushel. So how much more are they willing to invest at this point? Does this mean we are at or are near the high? Keep in mind as you are making your marketing decisions that spec funds added over 100,000 long contracts to their long positions just last week but if prices trend lower everything they own will likely be sold.

The decision of the Argentine government to suspend all exports of corn through February has been met with a lot of opposition from farmers and farm groups. A meeting was held yesterday between farm groups and government officials to discuss the situation. Following the meeting Argentina’s ag ministry said, “The national authorities were satisified with the agreements reached and indicated that they would evaluate the indicated volumes to determine in a decision can be taken to reopen export registries.” The original decision to suspend exports to ensure an adequate domestic supply and supress prices angered the farm sector which argued that there is not a shortage of corn in the country and threatened a strike if the decision is not reversed.

USDA Meteorologist Brad Rippey has warned us that the concerns of increasing drought conditions during the 2020 crop season are following us into the new year and flashbacks to 2012 are grounded. Rippey said, “There is a significant risk of drought persisting or even intensifying during the winter of 2020-21 and into the spring from southern California to the central and southern Great Plains.” He noted the considerable stress that the U.S. winter wheat is under and even with recent moisture in the region the crop is in the worst conditions that farmers have seen since the fall of 2012. Rippey explained that the deteriorating conditions are being propelled by dry conditions in Colorado, Kansas, Nebraska and Texas.

Nearly all of the western ½ of U.S. is already experiencing some level of drought and this is now increasing concerns that this upcoming growing season may mirror weather patterns similar to 2012. Rippey does not expect as severe conditions in 2021 nor the magnitude of agriculture impacts seen in 2012 for 2 reasons. First being the location of current dry conditions, which currently doesn’t include much of the Corn Belt. His second reason being the fact that during a La Niña weather event most of the eastern Corn Belt tends to receive ample rainfall. But he also cautioned this does not mean drought is out of the question, his biggest concern being the possible development of a flash drought in the Corn Belt. “La Niña (will be) exerting an increasingly strong influence on North American weather patterns. The northern polar jet stream is quite strong and amplified, as expected, and the southern (subtropical) jet stream is weak. One saving grace for places like Oklahoma and portions of neighboring states is that several recent storms have gotten trapped beneath-or cut off from the northern jet stream, leading to some beneficial rain and snow.” Rippey added, “La Niña driven weather impacts should last through the spring of 2021 and possibly longer if La Niña does not fade away with the arrival of the warm season. Multi-year La Niña episodes have occurred several times including 2010-12 and 1998-2001.”

Notice the drought condition maps. The first is from December, 2011 and is followed by the most recent map from this week.

Total precipitation expected across the country over the next week.

Overall temperature and precipitation trends through next weekend.

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