You know you are having a rough year when … Not a good way to start a sentence, but that is exactly how most Iowa producers feel right now. Not only has that state been devastated by hurricane style winds, but they are also fighting a drought that just will not relent.
The trade, and about a million traders, would like to know what the potential impact of the recent weather events are in Iowa. But at this point, that likely will not happen until the combines roll. Sure, there are a lot of numbers floating around right now, but the true level of damage will not be realized until the crop is harvested.
As for the hurricane-force winds that hit the state, early estimates had the number of impacted acres at 10 million. That number was quickly increased to 14 million. Of that 14 million acres in the path of the storm, 8.18 million were corn (3.57 million were hit hard) and 5.64 million were soybeans (2.5 million hit hard). The storm crossed over 57 counties, with 37 of those counties seeing significant damage.
The other disaster hitting Iowa is drought. Normally a hurricane means rain, but not when it’s a landlocked hurricane. The rain that accompanied the winds was welcome, but not enough to make a difference on production. As of Aug. 15, the Palmer Drought Index had the western third of Iowa in a moderate drought. The Palmer Drought Index is a gauge of deep soil moisture levels. The Drought Monitor Map also shows a worsening drought in Iowa. The Drought Monitor Map consists of topsoil moisture levels. The report from Aug. 20 has 88% of Iowa is some stage of drought versus 26% just three months ago. A break down of the levels has 43% D0 (abnormally dry), 22% in D1 (moderately dry), 17% in D2 (severely dry), and 6% in D3 (extremely dry).
On the flip side, the Farm Service Agency released its first 2020 Prevented Planting Acreage estimate, which was valid as of July 31. The report put all prevent plant acreage at 8.99 million. A breakdown of the crops has corn at 5.375 million, soybeans at 1.223 million, and wheat at 1.195 million. North Dakota took the honors with the most acreage, 1.75 million, followed by South Dakota at 898,000 acres, Mississippi with 562,000 acres, Arkansas with 501,000 acres and Louisiana with 289,000 acres. These numbers are sure to increase as not all of North Dakota producers had reported their acres to FSA as of July 31.
As the market is trying to sort through all the news that has been released on the recent storms, the noise from the event is making it hard to focus. The news we have seen this week has come from the U.S. Department of Agriculture's Crop Progress report and export sales. The Crop Progress report was disappointing as conditions did not decline as much as expected.
Corn’s crop condition rating came in better than expected. The trade was expecting corn’s crop rating to drop 3% to 68% good/excellent, instead it dropped 2% to 69% good/excellent. Most of the states that were in the path of the storm saw declining crop ratings, but not as much as expected. Iowa dropped 10%, Nebraska dropped 5%, North Dakota dropped 5%, Illinois dropped 3%, as did South Dakota. Indiana, Ohio and Minnesota all slipped 1%. Most were expecting Iowa numbers to drop more, but a lot of the destruction from the storm that moved through the top third of the state was offset by the improvement of the crop in the rest of the state.
Corn’s crop development has been running ahead of average, which was evident in the fast pace for silking and dough stage. All but five states are ahead of the five-year average pace for corn in the dough state (trailing behind are Missouri, North Caroline, North Dakota, Pennsylvania and Tennessee). But now that dent has become the category to watch, most states are not as far along as expected as only a few states are at or ahead of pace (of the big producing states it’s Iowa and Nebraska that are ahead).
Soybean conditions were as expected, dropping 2% to 72% good/excellent. Just like in corn, all of the major producing states saw decline in ratings (Iowa -8%, Nebraska -5%, North Dakota -4%, South Dakota -3%). As was the case last week, only North Dakota and Tennessee are running behind in pod setting.
Wheat harvest keeps slowly creeping toward completion. Winter wheat harvest only advanced 3% last week, now estimated at 93% complete. Spring wheat harvest was as expected, 30% completed. The Pacific Northwest continues to slow down winter wheat harvest while the only state ahead in spring wheat harvest is South Dakota. Spring wheat conditions came in 2% better than expected.
Exports for the week were spread out between all three of the major commodities. Early in the week there was an announcement of an export sale to an unknown destination for 130,000 metric tons of hard red winter wheat. Mid-week, it was corn’s turn as China bought 195,000 metric tons of corn and an unknown destination bought 130,000 metric tons of U.S. corn. Not to be left out, USDA reported a sale of 126,000 metric tons and 192,000 metric tons of new crop soybeans to China and 130,000 metric tons to an unknown destination.
In other demand news, soybean’s crush pace continues to be aggressive. The National Oilseed Processors Association crush estimate for July was reported at 172.794 million bushels, higher than the average trade estimate of 172 million bushels. Stocks came in at 1.619 billion pounds, lower than the 1.698 billion pounds expected.
Last week’s ethanol production was estimated at 926,000 barrels, an increase of 8,000 barrels. Stocks saw an increase of 520,000 barrels to 20.27 million.
The Pro Farmer Crop Tour took place last week and with the exception of Iowa, found above-average corn and soybean crop potential. Some areas will need more rain to finish the soybeans. The tour put South Dakota corn and soybeans as potentially monster crops with observations shattering the three-year average. Ohio is also seen as having great potential. Indiana, Nebraska and Illinois brought in a little more variability, but the states are showing average to slightly better potential for corn but good soybean potential.
In other news, the White House continues to praise the phase one trade deal. The Aug. 15 six-month review did not take place as planned (President Donald Trump said he canceled the meeting as he does not want to be seen talking to China at this time) and that had the market concerned that there might be something in the works for the deal. But instead, the White House has had numerous moments the past few days talking up the trade deal. Traders are very concerned that China could walk, and it is highly likely that as soon as South American soybeans become available, they will.
The markets have put in a strong rally over the past week. This, in our minds, is creating a selling opportunity for corn and soybeans. There is likely a little more strength left in the markets though as we continue to see strong demand and concerning weather forecasts. The strategy we are looking at for the 2020 crop year is to store wheat until November, store corn and sell the carry, but sell soybeans and other oilseeds off the combine. Wheat has a small carry to December, but it’s the basis improvement that makes holding wheat to November more attractive. The carry in corn makes that a better store-and-hold choice. Soybeans have no carry and for this crop, if you want ownership, calls are cheaper than storing. Corn is struggling to cross over and close above resistance. September resistance is at $3.30 while December is at $3.40. Soybeans are also struggling to cross the $9.15 level, which could open the market for more upside potential.
Cattle continue to see solid cash trade which is helping hold the live cattle in the black. There were reports of cattle moving on bids between $103 and $108. Feeders were supported by a sloppy corn market. Position squaring ahead of the Cattle on Feed report was also evident. Early estimates were: On Feed: 101%, Placed: 106%, and Marketed: 99%. Boxed beef prices continued to push higher this week, which is a good sign of domestic demand.
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