Evening Report | June 20, 2023

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Corn condition again drops more than expected... As of Sunday, USDA rated 55% of the corn crop as “good” to “excellent,” down six percentage points from the previous week and lower than the lowest of analysts’ expectations. Traders on average anticipated a three-point decline. The portion of crop rated “poor” to “very poor” increased four points to 12%.

USDA reported 96% of the corn crop had emerged, two points ahead of the five-year average for the date.

Soybean condition also drops more than anticipated... USDA rated 54% of the soybean crop as “good” to “excellent,” down five points from the previous week and below the bottom end of pre-report expectations. Traders on average expected a two-point decline. The amount of crop rated “poor” to “very poor” increased three points to 12%.

USDA reported soybean emergence at 92%, 11 points ahead of average.

Cotton condition declines... USDA rated the cotton crop 47% “good” to “excellent,” down two points from the previous week. The portion of crop rated “poor” to “very poor” increased five points to 20%. The Texas crop was rated 30% “good” to “excellent” and 32% in the bottom two categories.

USDA reported cotton planting at 89% done, five points behind average. Texas producers had seeded 84% of their crop versus the normal 93% for the date.

The amount of cotton squaring stood at 19%, two points below average. The portion that was setting bolls was 3%, one point below average.

Spring wheat condition drops sharply... USDA rated 51% of the U.S. spring wheat crop as “good” to “excellent,” down nine points from the previous week. Traders expected a two-point decline. The portion of crop rated “poor” to “very poor” increased five points to 12%. In top producer North Dakota, USDA rated the crop 55% “good” to “excellent” and 12% in the bottom two categories. The lowest rated crop was in South Dakota at 32% “good” (0% “excellent”) and 26% “poor” to “very poor.”

USDA reported 98% of the crop was emerged (95% average) and 10% headed (10%).

Winter wheat harvest behind normal... USDA reported winter wheat harvest increased seven percentage points over the past week to 15% completed, though that was five points behind average. Harvest stood at 62% in Texas (62% average), 40% in Oklahoma (54%) and 8% in Kansas (16%).

EPA will reportedly increase 2023 biofuels mandates, reduce the following years... EPA plans to increase the amount of biofuel blending volumes for 2023 versus its proposed levels, but plans to reduce volumes in 2024 and 2025 compared to the proposals, two sources familiar with the matter told Reuters. EPA plans to finalize biofuel blending volumes at 20.94 billion gallons in 2023, 21.54 billion gallons in 2024 and 22.33 billion gallons in 2025.

The finalized volumes reportedly include 15 billion gallons of conventional biofuels like corn-based ethanol in 2023, 2024 and 2025, which represents a decline from the proposed level. In 2023, however, EPA plans to include 250 million gallons of “supplemental standard.”

OMB says its review of EPA’s proposals was completed last Friday. Reuters says EPA is expected to announce the final rule on Wednesday.

UN tells Russia it can’t fully resolve its Black Sea deal grievances... The United Nations has confirmed it cannot do anything to address some of Russia’s central grievances around the Black Sea grain deal, state news agency TASS reports, citing Russia’s foreign ministry. In particular, the UN indicated it can’t ensure the resumption of ammonia exports via a pipeline in Ukraine, reconnecting Russia’s agricultural bank to the SWIFT financial system or ensuring supplies of spare parts for farm machinery.

Sugar prices are high — and El Niño could push them even higher... A Barron’s article says rising sugar prices are raising concerns for farmers and consumers. Late rainfall last year in India, the world’s second-largest sugar exporter, resulted in a limit on sugar exports. This decline in exports, combined with potential El Niño impacts, has pushed prices even higher. A strong El Niño could cause early rains in Brazil, diluting sugar-cane content, and droughts in Thailand, affecting the crops of the world’s largest- and third-largest sugar exporters. Other commodities such as cocoa and robusta coffee could also be influenced by El Niño.

The global sugar deficit has led to tight supply, with consumption outpacing production. High sugar prices, while potentially benefiting sugar sellers, also impact consumers struggling with inflation and farmers who have less to sell. The International Sugar Organization states that mills are maximizing sugar production, but the potential of El Niño’s repercussions remains a concern.

SF Fed study looks at issues impacting inflation... Pandemic-related snarls in global supply chains have mostly receded, but their after-effects still account for a big chunk of excess U.S. inflation, an analysis published by the San Francisco Federal Reserve Bank showed. Shortages from supply-chain disruptions drove most of the upswing in prices since April 2021, and the easing of those issues since mid-2022 has contributed to reduced inflation, the paper showed. A year ago, inflation measured by the personal consumption expenditures (PCE) price index reached a peak of 7%, and supply shock pressures contributed about 2.5 percentage points of that, according to the paper. As of March, PCE inflation had fallen to 4.2%, of which supply shocks accounted for around 1.4 percentage points.

The San Francisco Fed paper suggests a sizeable further drop in inflation is already baked in due to the delayed effect of now mostly normalized supply chains. “If there are no additional shocks going forward, then supply-chain-driven inflation should vanish by early next year,” the authors told Reuters.

But separate research from San Francisco Fed economist Adam Shapiro suggests there will be a handoff from supply-driven inflation to demand-driven inflation. And analysis by former Fed Chair Ben Bernanke and former International Monetary Fund chief Olivier Blanchard suggests wage growth may take over from supply shortages as a main driver of inflation.