USDA expects yields to average 173.4 bushels per acre, down 0.8 bushel from their previous forecast. Many seasoned traders will tell you this was clearly unexpected and somewhat bullish news. They will also tell you when a market fails to rally (as it did yesterday) on a bullish headline, it’s a market that may be headed for more downhill price action.
The USDA raised the yield by 0.4 bushels per acre. There were really no major changes in state estimates to speak of. We still have record high yields forecast for AR, IL, IN, OH, MO, SD, TN, etc..
Corn traders continue to digesting the best crop conditions we have seen in the past two decades. The USDA pushed this years crop to 74% rated “Good-to-Excellent” up by +1% compared to last week, but massively ahead of the 5-year 54% average and last years 56% “Good-to-Excellent” rating. Perhaps even more impressive is the fact only 7% of the entire crop is rated “Poor-to-Very Poor” compared to the 5-year average of 21%.
The “Good-to-Excellent” rating was raised yesterday by +2% and now stands with 72% of the crop rated GD/EX…basically the highest rating ever for this time of year (tied with 1994). Keep in mind the 5-year average is just 55% rated GD/EX for this time of year. Similar to corn, there is only 6% of the crop rated “Poor-to-Very Poor” compared to a 5-year average of 15%. Also similar is the stark difference and improvement in the crop conditions for the major soybean producing states: The ND crop is rated +36% better than last year; MO +35% better than last year; IA +34%; IL +26%; SD +17%; MN +16%; AR +10%; IN +8%; NE +6%.
I have fielded lots of questions as of late about cotton. In fact several producers have told me if cotton prices don’t turn around soon they simply won’t be able to grow the acres next year. Will this mean more bean or wheat acres? If you look at the chart I included below you can see how cotton prices have been in a “death spiral” since mid-May. July wasn’t much different as prices fell during the month by another -14% on prospects of a strong US harvest and somewhat suspect demand out of China. The problem is while China continues to transition out of their current cotton subsidy program (which encouraged large government stockpiling) there are simply very few bullish headlines in the market to excite the bulls, especially with no real US weather story. Also keep in mind the ICAC recently raised its forecast for the US harvest by 300,000 tons to 3.5 million and at the same time lifted its estimate for Chinese production by 200,000 tons to 6.2 million. The lone bright spot is the fact several inside sources now believe overall “demand” is going to surge as cotton becomes much more competitive against man-made fibers. From where I sit, this means prices may finally start to stabilize and perhaps even start to climb back out of the hole if we can get a few bullish global weather headlines to go along with the strengthening demand story. From a producers standpoint I would NOT be pricing any additional production on the recent nearby break… a “wait-and-see” approach might simply be the most prudent strategy considering the depth of the recent price break and what appears to be a possible surge in demand down the road.
Most of you have heard or read the headlines yesterday in regard to Russian President Vladimir Putin ordering food import restrictions in retaliation against countries that seek to punish Russia. What does this mean to US producers? From what I can gather Russia has threatened to completely ban ALL US agricultural products from its market and slap an import ban on all fruit and vegetables from the EU. This will also include all US poultry being exported into Russia. About 20-years ago that would shave been a huge pinch considering about 40% of our poultry exports went to Russia, which now only accounts for about 7%. Overall, the US exported $1.3 billion in food and agricultural products to Russia in 2013, while the EU export total came to $15.8 billion. In other words Putin has chosen a more hardline response to western sanctions and tensions are starting to flare. There is no question the situation in the Black Sea is a huge “wild card.” But I honestly don’t see the US getting involved militarily at any juncture. Sure we could impose deeper sanctions and continue with a war of words, but I’m just not sure how that plays out as bullish longer-term? The trades natural knee-jerk reaction to political uncertainty is almost always to add in additional “risk-premium” for commodities… I’m just not so sure the “premium” is needed. From a purely fundamental perspective, cutting off imports simply decreases overall global demand and puts more available supply in the marketplace, hence lower prices. I also don’t see how a food related import ban even happens, considering Russia imports about 40% of all their food. Some economist say it could be economic and political suicide for Putin as inflation inside Russia would skyrocket as supplies of everyday grocery items disappear. Just this morning Moscow announced a blacklist detailing which foreign agricultural goods and food products will be banned under the new order…Below are the details:
Russia will ban fruit, vegetables, meat, poultry, fish, milk and dairy imports from the United States, the European Union, Australia, Canada and Norway, Prime Minister Dmitry Medvedev reported at a government meeting on Thursday. The ban is valid from Aug. 7 and will last for one year.
- cattle meat, fresh, chilled or frozen;
- pork, fresh, chilled or frozen;
- poultry and its subproducts, fresh, chilled or frozen;
- all salted, dried or smoked meats;
- fish, shellfish, scallops and other aquatic invertebrates;
- milk and dairy products;
- sausage and similar meat products;
- cheese and similar products.
I have had lots of guys tell me as of late there is absolutely no need for them to make sales in new-crop corn since we are trading well under the spring revenue insurance guarantee of $4.62. This could be very dangerous logic and something you need to make sure you really understand, especially for those producers who have little to any currently priced. I put together a simple graphic (below) that will give you a better idea of why I’m concerned. What we have to first understand is that most producers have “revenue” related policies. In other words they are based on an equation that consists of: (your APH x the spring guarantee of $4.62) less (“total” new-crop bushels produced x the spring guarantee of $4.62). What many folks fail to realize is the fact if you produce a crop that is substantially above your APH (which as of right now looks to be the case for many here in the US), then prices might have to drop below $3.50 per bushel before you see any type of insurance check. Take the time to meet with your insurance agent and carefully work ALL of the numbers and variables associated with your specific operation.
I sent my son Jordan out with Chase for a little crop tour and learning session. They have been out visiting subscribers in Missouri, Illinois, Ohio, Indiana, Iowa, Nebraska, Kansas, Colorado and Minnesota. The pictures below were taken yesterday while at a couple of operations in Ohio (one northwest of Columbus, OH and one southeast of Columbus). As you can imagine most all stops have found smiling producers at the end of the drive. Nobody wants to jinx themselves, but the crop is off to a very good start. There are of course some spot locations (all around the corn belt) that weren’t able to get the acres planted in a real timely fashion due to the late-Winter and too much spring moisture. Those late-planted crops still look good, but obviously not near as tall or as far along as the field pictured below. If there are any complaints it has to be too much moisture, some small bits of nitrogen leeching and a small amount of fear in regard to soybeans being hit with too much rainfall. Something interesting is the massive amount of bins and storage now on farms across the Midwest. The operation pictured below had storage for about 600,000 bushels, while several others we have visited the past couple of weeks have storage for between 1 – 2 million bushels (they didn’t want pictures taken). My point is who really knows how much is actually being stored on the farm these days???
Below, the top pic is from just outside Larry Bird’s old stomping ground in Terre Haute, IN and the other is from out in Brookston, IN. Thanks to everyone who extended their hospitality to they boys! They’ll be back out a few more times this summer. Drop us a note if you’d like them to pay you a visit!
USDA’s Weekly Corn Crop-Conditons: Below are some specific’s in regard to the recent weeks change in overall crop-conditions rated GD/EX, as you can see from the map the states colored “green” improved and the states colored “red” are seeing some setback out in the field: MN crop down -9%; CO & IA -4%; SD & WI -3%; PA -1%; KY, MI & OH “unchanged”; KS, NC, ND & TN +1%; IL, IN & NE +2%; MO +4%.
USDA’s Weekly Soybean Crop-Conditons: Below are some specific’s in regard to the recent weeks change in overall crop-conditions rated GD/EX, as you can see from the map the states colored “green” improved and the states colored “red” are seeing some setbacks out in the field. Overall the US crop went from 73% rated GD/Ex down to 72% rate dGD/EX: The MN crop conditions were lowered by -10%; SD -8%; IA -3%; OH -2%; ND -1%; AR & IN “unchanged”; IL, MI, NE, NC & TN +1%; KS, MS & WI +2%; KY +3%; LA & MO +4%.
USDAs Winter Wheat Harvest Progress: The USDA is now estimating that the US winter wheat harvest is 33% complete vs. the 5-year average of 31% by this date. This obviously surprises many of the bulls as they felt the crop was more severely behind schedule. Be careful with this data as I’m afraid it could be interpreted wrong. IF you look at the map below on the states of California and Texas are running ahead of their traditional 5-year harvest pace, the rest of the country is still running behind.
I continue to see report after report that El Nino weather patterns are slowly but surely coming our direction. The argument is a large wave of warm water is starting to move towards the surface out in the Pacific Ocean and along with it will come more dramatic weather changes in the weeks ahead. Remember, each El Nino can produce dramatically different results, so there is no clear cut knowledge or guarantee that we will see a drought, an extremely hot July, an early freeze or harvest time flooding. All it means is that conditions are right for a change in patterns…perhaps here in the US that change means near ideal temps and rainfall amounts for a majority of the corn belt.