Evening Report | September 5, 2023

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Corn condition declines more than expected... As of Sunday, USDA rated 53% of the corn crop as “good” to “excellent,” down three percentage points from the previous week. Traders expected a two-point decline. The amount of crop rated “poor” to “very poor” increased one point to 18%.

USDA reported 93% of the crop was in dough stage (92% on average), with 67% dented (65%) and 18% mature (16%).

Soybean condition deteriorates more than anticipated... USDA rated 53% of the soybean crop as “good” to “excellent,” down five points from last week. Traders expected a three-point decline. The portion of crop rated “poor” to “very poor” increased three points to 17%.

USDA reported 95% of the crop was setting pods (94% on average) and 16% was dropping leaves (13%).

Cotton conditions decline... USDA rated 31% of the cotton crop as “good” to “excellent,” down two points from the previous week. The amount of crop rated “poor” to “very poor” declined three points to 41%. The Texas crop was rated 11% in the top two categories and 61% in the bottom two.

USDA reported 94% of the cotton crop was setting pods (95% on average) and 32% had bolls open (33%).
 

Spring wheat harvest nearly three-quarters complete... USDA reported 74% of the U.S. spring wheat crop was cut as of Sunday, a 20-point increase from the previous week but still three points behind the five-year average for early September. North Dakota (64% vs. 73% on average) and Idaho (63% vs. 78%) were running behind with harvest, while the other four states were ahead of their average paces.

Winter wheat planting off to slow start... USDA’s first winter wheat seedings figures showed 1% of the crop planted, two percentage points behind last year and the three-year average. Planting was 1% done in Kansas (0% on average), while Texas and Oklahoma hadn’t started (1% on average for both).

S&P Global raises corn, soybean crop forecasts... Based on its September production survey, S&P Global Commodity Insights forecasts the U.S. corn crop at 15.395 billion bu. on a national average yield of 177.5 bu. per acre, according to media reports. The firm increased planted area 500,000 acres to 94.596 million acres, based on its analysis of FSA’s August certified acreage data. In August, USDA estimated the corn crop at 15.111 billion bu. on a yield of 175.1 bu. per acre.

S&P Global estimates the soybean crop at 4.214 billion bu., up 9 million bu. from USDA’s August forecast. The firm’s soybean yield increased to 51.0 bu. from USDA’s August estimate of 50.9 bu. per acre. S&P Global noted August finished poorly, so it has a negative bias toward yield moving forward. The firm said a slight increase in soybean acreage is possible, though it made no changes at this time.

S&P Global estimates the cotton crop at 13.084 million bales on a yield of 781 lbs. per acre. In August, USDA estimated the crop at 13.992 million bales on a yield of 779 lbs. per acre. The firm reduced cotton plantings by 805,000 acres to 10.282 million acres.

Farm bill timeline... The real deadline for a new farm bill is at the end of the year and not at the end of this month when some farm bill provisions expire. That means lawmakers may wait a while before extending the current farm bill. If that occurs, pay attention to the length of the extension request. If it is only for a few months, that means lawmakers believe there is a chance to complete a new farm bill. If it is a one-year or longer extension, the issue has been punted. Also, when language of any new farm bill is officially unveiled is important. Reason: Key lawmakers have indicated they would want a committee markup of the bill in a week to two weeks after introducing the omnibus measure. And whenever that process starts, lawmakers from both the House and Senate would likely have some assurance from their leaders the bill would be voted on in the full House and Senate.

Keys to the eventual farm bill debate include:

• Chairman’s mark: This is where some initial farm bill surprises could surface. This is voted on up or down with no amendments. So, pay close attention.
• Farm bill markup in committee: Some sensitive farm bill issues will not likely be part of the measure introduced in both chambers, but these could and likely will surface during markup where panel votes will take place.
• Floor amendments: This is when some attacking farm bill programs surface, so lawmakers are aware of the need to garner the votes to defeat them. Some positive amendments are possible.

FAPRI updates ag baseline projections... The baseline projections from the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri are based on USDA’s August crop estimates, S&P Global’s July macroeconomic assumptions and a continuation of current government policies. Highlights:

• Farmers planted more corn this spring, so USDA’s August estimate showed a rebound in U.S. corn production in 2023. More production contributes to lower prices, as the marketing year average price is projected to fall from $6.60 in 2022-23 to $4.94 for 2023-24.
• The proportional decline in soybean prices is smaller, from $14.20 to $12.88 in 2023-24.
• The war in Ukraine contributed to an upward spike in wheat prices in 2022. Wheat prices have fallen back given adequate global supplies, even though U.S. wheat yields were below the long‐term trend for the third straight year in 2023.
• Cotton prices are supported by a second consecutive year of reduced U.S. cotton production, as prices are projected to dip only slightly in 2023-24.
• Corn, wheat, soybean and cotton prices could all decline again in 2024-25 if growing conditions allow yields to recover to trendline levels.
• Increased biofuel use of vegetable oil supports the price of soyoil and soybeans. U.S. crush increases, pushing down the price of soybean meal relative to soybeans and soybean oil.
• Given an assumed modest expansion of the Renewable Fuel Standard (RFS), consistent with recent policy, overall U.S. biofuel use would increase slowly over the next five years.
• Projected domestic use of ethanol is about the same in 2028 as it was in 2022, while the use of biomass‐based diesel would increase by more than a billion gallons over the same period. Biofuel production and use continue to be sensitive to trends in fuel use and regulatory decisions.
• Drought has reduced cattle numbers, pushing up prices for fed and feeder cattle. Projected 5‐area direct steer prices would rise from $144 per cwt. in 2022 to $178 in 2023 and reach a peak of $189 in 2025, when beef production is projected to be 2 billion lbs. lower than in 2022. The proportional increase in feeder steer prices is even sharper.
• Projected U.S. pork production remains in a narrow range between 2022 and 2025. Hog prices would drop more sharply than feed costs in 2023. An increase in U.S. pork exports in 2023 is largely offset by lower domestic use.
• Rising poultry production and domestic use moderates the decline in overall U.S. meat and poultry consumption in 2023. Projected chicken production increases by more than 3 billion lbs. between 2022 and 2028.
• After very strong growth in 2021 and 2022, projected per‐capita U.S. consumer meat expenditures increase only marginally in 2023 and for the next several years.
• An increase in production and weaker international markets contribute to sharply lower milk prices in 2023. Combined with high prices for alfalfa and other feeds, the result has been large payments to dairy producers under the Dairy Margin Coverage program.
• Prices for fertilizer increased dramatically in 2022 but have since declined. Given projected prices for fertilizer and other inputs, costs for corn and other crops should decline further in 2024 and 2025.
• U.S. consumer food prices increased by 9.9% in 2022, the highest rate in decades. Year‐over‐year increases in food prices have slowed dramatically in recent months, and the annual average increase in the food consumer price index (CPI) is projected to be 5.9% in 2023.
• The increase in the food CPI is projected to slow to 2.5% in 2024 and to less than 2% in 2025. In contrast to 2022, projected increases in the price of food consumed away from home are larger than the increases in prices of food consumed at home.

Farmer sentiment declines amid weaker view of current conditions... U.S. farmers’ sentiment dropped 8 points (6.6%) in August, according to the Purdue University/CME Group Ag Economy Barometer, fueled mostly by weaker perception of current conditions both on their farms and for U.S. agriculture. The Current Conditions Index fell 10.7%, while the Future Expectations Index declined 4.0%. The overall ag barometer was 1.7% lower than August 2022.

Although farmers reported little change in their farms’ financial condition compared to a month earlier, conditions were reported to be weaker than last year. Six out of 10 farmers in the August survey said they expect interest rates to rise over the next year, which along with rising prices for farm machinery and new construction, was cited as a reason for a weaker investment climate. Despite concerns about rising interest rates, producers remained cautiously optimistic about farmland values in both the short-run and longer-term.

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Saudi Arabia, Russia extend supply cuts through year-end... Saudi Arabia will extend its voluntary cut of one million barrels per day for another three months until the end of December 2023, state news agency SPA reported. The voluntary cut decision will be reviewed monthly to consider potential changes to supply.

Russia will extend its voluntary decision to reduce oil exports by 300,000 barrels per day until the end of the year “to maintain stability and balance” on oil markets, Deputy Prime Minister Alexander Novak said.

No recession, but inflation... Goldman Sachs now sees less of a chance the U.S. will slide into recession as cooling inflation and a still-resilient labor market suggest the Federal Reserve may not need to raise interest rates further. The bank now sees the probability of a U.S. recession at 15%, down from 20% previously. Reasons for the change: “First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” says Jan Hatzius, chief economist at Goldman. “Second, we still strongly disagree with the notion that a growing drag from the ‘long and variable lags’ of monetary policy will push the economy toward recession.”

Despite the improved outlook, inflation fears persist, driven by the crude oil market. Rising energy prices could force central banks to stay hawkish on interest rates. Another potential storm cloud: Investors are questioning whether the S&P 500 benchmark index can hold onto its 18% year-to-date gains if inflation rises this autumn.

Why the U.S. economy keeps defying predictions of recession. According to Wall Street Journal writers Nick Timiraos and Chip Cutter, inflation-adjusted or “real” incomes are rising, Covid-19-related shortages created enormous pent-up demand that has been less sensitive to higher rates and government polices showered the economy with cash and allowed many businesses and consumers to lock in low borrowing costs.