Evening Report | June 8, 2023

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Dryness/drought now covers most of Corn Belt... As of June 6, the Drought Monitor showed 55% of the U.S. was covered by abnormal dryness/drought, up five percentage points from the previous week. USDA estimated drought covered 45% of corn production areas (up 11 points from last week), 39% of soybeans (up 11 points), 5% of spring wheat (down one point) and 19% of cotton areas (down nine points).

The Drought Monitor noted: “Heavy rains fell this week across some of the western parts of the Central and Southern Great Plains, especially in the Texas Panhandle and western Oklahoma and Kansas, leading to widespread improvements to ongoing drought in the western Great Plains. Heavy rains in the central and southern Florida Peninsula also led to improvements to ongoing drought and abnormal dryness in the southwest Florida Peninsula. Widespread degradations occurred in the Midwest.”

For the Midwest, the Drought Monitor stated: “Localized heavier rains (exceeding 2 inches in spots) fell across the western reaches of the Midwest region, though large swaths of drier-than-normal weather occurred here. Farther east, in Kentucky and the Great Lakes states, mostly or completely dry weather occurred this week, which led to mounting short-term precipitation deficits and worsening streamflows and soil moisture values. Unusually warm temperatures, reaching or exceeding 9 degrees above normal in large portions of Michigan, Wisconsin and Minnesota, also contributed to worsening dryness. Large-scale additions and expansions of abnormal dryness and moderate drought occurred, especially along and east of the Mississippi River and in central Minnesota, where the combination of precipitation deficits, low streamflow and declining soil moisture was most prevalent. Due to similar conditions along the Missouri River in western Iowa, some expansions were made to severe drought there.”

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CPC: El Niño present, will gradually strengthen... Weak El Niño conditions have emerged, according to the U.S. Climate Prediction Center (CPC). The El Niño event will strengthen through winter, with 84% odds it will be moderate and 56% chances it will become strong.  

Ag trade deficit expands in April... The U.S. exported $14.38 billion in ag goods during April against imports of $16.28 billion, resulting in a deficit of $1.90 billion versus a deficit of $1.83 billion in March. Through the first seven months of fiscal year (FY) 2023, U.S. ag exports totaled $114.56 billion against imports of $115.22 billion for a deficit of $660 million. That marked the first time with red ink in FY 2023, as the U.S. had an ag surplus of $1.24 billion through the first half of the fiscal year. USDA forecasts FY 2023 ag trade exports at $181.0 billion and imports at $198.0 billion, which would suggest a deficit of $17.0 billion.

U.S. beef, pork exports decline during April... The U.S. exported 267.6 million lbs. of beef during April, down 18.1 million lbs. (6.3%) from March and 36.4 million lbs. (12.0%) less than the previous year amid notable declines in shipments to Japan and Mexico. Through the first four months of this year, U.S. beef shipments totaled 1.047 billion lbs., down 102.1 million lbs. (8.9%) from the same period last year. Of the top five destinations for U.S. beef, only Mexico imported more supplies than last year through April.

U.S. pork exports totaled 580.6 million lbs. in April, down 27.5 million lbs. (4.5%) from March but 51.9 million lbs. (9.8%) more than April 2022. For January through April, the U.S. shipped 2.249 billion lbs. of pork, up 179.4 million lbs. (8.7%) from the same period last year as exports increased to all five of the top buyers – Mexico, Japan, South Korea, China and Canada.

Adjusting reference prices for crops based on changes in the cost of production... Dr. Bart Fischer in Southern Agriculture Today wrote about adjusting reference prices – an important topic going into the key debate about a new farm bill and the need to update Title 1. Fischer’s main points:

• Corn, soybeans, and wheat account for 85% of the base acres nationwide, which means decisions made for these three crops will greatly impact spending in Title 1 of the farm bill.
• Policymakers should consider the unique risk profiles of each crop and the opinions of farmers instead of making across-the-board adjustments in the farm safety net.
• The cost of production is a proper metric for determining reference prices as it relates to the key objective of the farm safety net in Title 1.
• Many farmers feel that the Title 1 safety net has not kept up with the increasing cost of doing business.
• The recent comparison of corn and rice in the article is not meant to imply that corn, soybean, or wheat producers don't need reference price increases.
• Data from USDA-ERS shows an increase in the average cost of production for corn, soybeans, and wheat between the base periods, and regional variations must be considered.

Bottom line, according to Dr. Fischer: “Corn, soybean, and wheat producers are absolutely justified in requesting Reference Price increases. Depending on the region in which you produce, the sense of urgency may be even greater.” Several state corn grower groups representing about 25% of corn production have written the House and Senate Ag Committee urging an updated reference price.

IMF urges Fed, other central banks to keep tightening to fight inflation... The International Monetary Fund (IMF) urged the Federal Reserve and other global central banks to “stay the course” on monetary policy and remain vigilant in combating inflation. While inflation has eased from its peak last year, price pressure remains “a pressing concern.”

“If inflation does prove to be more persistent than expected, then the Fed may need to push interest rates higher for longer,” IMF spokesperson Julie Kozack said. “We see challenges over the medium term for the global economy, and that requires policy measures to be taken now,” she said. “We believe that central banks should stay the course on monetary tightening to decisively reduce inflation.”

Goldman Sachs prepares for ‘mini-stagflation’... Goldman Sachs is planning for a period of sluggish growth and higher inflation, the bank’s president John Waldron said, calling it “a mini-stagflation scenario.” He noted, “The primary debate to me is inflation. When I talk to our clients... the single biggest debate that I hear is, how sticky will it be.”

He also said risk appetite for its clients is lower. “You’re certainly seeing reduced business investment,” Waldron said. “I still come back to the combination of inflation and geopolitics as two big areas that we have to get a little bit of a better understanding of.”