Evening Report | July 21, 2022

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Turkey says Ukraine grain export deal to be signed Friday... Ukraine, Russia, Turkey and U.N. Secretary-General Antonio Guterres will sign a deal on Friday to resume Ukraine’s Black Sea grain exports, Turkish President Tayyip Erdogan’s office said. Details of the agreement were not yet known. It is due to be signed on Friday at the Dolmabahce Palace offices at 8:30 a.m. CT.

Ukraine’s Deputy Ag Minister Taras Vysotskiy said, “The majority of the infrastructure of ports of wider Odesa – there are three of them – remains, so it is a question of several weeks in the event there are proper security guarantees.” That seems like a quick timeframe for resumption of grain exports. There are still key issues that must be resolved, including:

• A signed agreement and actual resumption of exports are two very different things.
• Russian President Vladimir Putin is the key figure. In the past he has said Ukraine will sell grain to buy weapons.
• Removing Western sanctions has been absent in the reporting on the prospective deal, but will Putin raise this again later?
• Turkey obviously wants food out of the deal... if it provides passage/support, it gets grain.
• What kind of protections are there to additional Russian attacks relative to Ukraine’s ports?
• How much of the estimated 22 MMT of grain stuck at Ukraine’s ports has already been sold by Russia?
• Difficulty in getting this deal means overall peace is nearly impossible.

NWS: Hot, mostly dry finish to the growing season... The National Weather Service (NWS) 90-day forecast calls for elevated odds of above-normal temps across virtually the entire country for August through October. The highest chances for above-normal temps are expected to stay west of the main U.S. summer crop regions. Below-normal rainfall is expected over most of the central and western Corn Belt, with the greatest chances for lighter rainfall centered over the southwestern Corn Belt/Plains and a bubble over extreme northeastern Iowa, far eastern Minnesota and much of Wisconsin. NWS gives “equal chances” for normal, below- and above-normal precip over the far eastern/southeastern Corn Belt during the period.

If the forecast verifies, hotter-than-normal temps will necessitate timely late-season rainfall, especially in those areas that are expected to favor a drier bias. Based on this forecast, the key to the second half of the growing season will be whether there are enough extra bushels in the central and eastern Corn Belt to make up for likely yield losses in western and southwestern areas. The wild card could be weather over the next three months in the Southern Corn Belt and Ohio River valley.

Click here to view related maps.

Drought coverage unchanged but footprint shifts... As of July 19, 69% of the U.S. was experiencing abnormal dryness/drought, according to the U.S. Drought Monitor, unchanged from the previous week. But there was some movement of the drought footprint based where rains fell. The Drought Monitor commentary stated, “Most of the eastern third of the U.S. recorded precipitation during the last week, with only a few pockets that missed out. Portions of the Midwest and into the Southeast had some amounts over 3 inches for the week and even widespread 5+ inch amounts in the coastal areas of Florida, and some rain at the end of the period allowed for much of New England to stay status quo for the week and even see a few improvements. The areas with the most rain also had the coolest temperatures, with much of the Midwest and Southeast cooler than normal for the week with departures of 2-4 degrees below normal. Warmer-than-normal temperatures dominated the western half of the country with areas from Montana to Texas recording temperatures that were 6-8 degrees above normal. The coastal areas of the Pacific Northwest were cooler than normal while the Great Basin was warmer than normal with departures of 6-8 degrees above normal. With the dryness and heat, the flash drought that has been developing in the central to southern Plains developed even more this week with the wet conditions of May and June quickly being forgotten.”

Across the Corn Belt, dryness/drought covers 36% of Illinois (down 17 points), 69% of Indiana (down 10 points), 47% of Iowa (up 2 points), 82% of Kansas (up 22 points), 41% of Michigan (up 1 point), 28% of Minnesota (up 17 points), 74% of Missouri (up 11 points), 87% of Nebraska (unchanged), 1% of North Dakota (up 1 point), 16% of Ohio (down 4 points), 59% of South Dakota (up 4 points) and 35% of Wisconsin (unchanged).

USDA estimates the drought footprint at 29% for corn (down 1 point from last week), 26% for soybeans (up 1 point), 16% for spring wheat (down 1 point) and 66% for cotton (down 5 points).

Click here for more details and to view related map.

SovEcon raises Russian wheat crop estimate... SovEcon raised its 2022 Russian wheat crop forecast by 1.7 MMT to 90.9 MMT, citing record yields on early harvested fields in the Rostov region (top producing region) and Krasnodar (No. 2 producer). The Russia-based consultancy says its yield forecast was slightly raised for the Volga Valley region and lowered for the Center region. SovEcon raised its average Russian winter wheat yield to 3.94 MT per hectare (up 14.9% from last year) and spring wheat yield to 1.88 MT per hectare (up 1.6% from last year).

Despite the bigger production estimate, SovEcon says exports are sluggish and if the pace “doesn’t speed up substantially” during the coming weeks, its 2022-23 export forecast of 42.6 MMT could be “too optimistic.”

USDA projects the Russian wheat crop at 81.5 MMT (excluding Crimea, which typically produces 500,000 to 900,000 MT) and exports at 40.0 MMT.

IGC trims global corn crop, raises wheat estimate... The International Grains Council (IGC) trimmed its forecast for this year’s global corn output, largely driven by drought stress in the European Union. IGC cut its global corn production forecast by 1 MMT to 1.189 billion MT, which would be down 31 MMT (2.5%) from last year.

IGC raised its 2022 global wheat production forecast by 1 MMT to 770 MMT, which would be down 11 MMT (1.4%) from last year.

IGC cut its global soybean production forecast for this year by 4 MMT to 386 MMT, due mostly to reduced prospects for the U.S. crop amid lower planted acreage. Global soybean production in 2022-23 is still expected to rise 35 MMT (10%) from last year.

Exchange cuts Argentine wheat acreage forecast... The Buenos Aires Grain Exchange forecasts Argentina’s wheat planted area for 2022-23 at 6.1 million hectares, down 100,000 hectares from its previous outlook. This the fifth reduction in wheat acreage by the exchange due to persistent drought. For 2021-22, Argentine farmers planted 6.7 million hectares to wheat.

Crop insurance hearing again shows bipartisan support for risk management tool... Despite attempts by some activists to place means tests and pay limits on crop insurance availability, a House Ag subcommittee on Wednesday made clear that such poison pills will not be successful and instead looked for ways to further improve the program.

Highlights of the hearing:

• Bob Haney, executive director of AgriSompo North America, told subcommittee members that federal subsidies for crop insurance were better for farmers than the ad hoc disaster payouts that were more common in the 1980s and 1990s. “Our industry protects all types and sizes and covers 130 different commodities,” he said in a written statement. “We believe crop insurance is one of the best tools to protect farmers against Mother Nature … and is a farmer’s first line of defense against climate change.”
• Crop insurance industry consultant Alex Offerdahl said one possibility is to make margin policies more attractive. Rep. G.T. Thompson (R-Pa.), ranking member of the House Ag Committee, continues to express interest about this topic.
• Tom Haag of the National Corn Growers Association noted that during the run-up to the 2018 Farm Bill, his group’s priority was to “maintain support for a robust crop insurance program.” That priority continues with this farm bill, he said. Haag added that crop insurance agents are the farmers’ key advisors not just on crop insurance but on all farm programs.
• Kathy Fowler, a crop insurance agent from Memphis, Texas and a member of the Crop Insurance Professionals Association, the nation’s crop insurance agents organization, called AGI means testing and pay limits on crop insurance a “non-starter” and warned that these policies would ultimately hurt small farmers because midsized and larger full time farmers would no longer be in crop insurance or the risk pool, increasing overall risk and resulting in premium rate increases for those left in the pool. Fowler also noted that the current A&O structure for specialty crops is flawed and resulting in a 40% cut in A&O on such policies and commended Chairman Sanford Bishop (D-Ga.) and Ranking Member Andy Harris (R-Md.) on the Ag Appropriations Subcommittee for including a one-year fix to the problem. Nearly all of the Members of the Subcommittee voiced their support for the provision.
• Fowler and Haney also said that while farmers benefitted from the various ad hoc disaster payments funded since the 2018 Farm Bill, lawmakers should avoid establishing a permanent disaster program in the new farm bill legislation. “(Private insurers) actually don’t want to see the creation of a program that would double-pay farmers for the same loss,” Haney said. “This would indirectly discourage the purchase of crop insurance and possibly lead to changes in farming practices that could lead to potential instances of fraud, waste and abuse.”
• Lawmakers were advised to be cautious when considering climate-related crop insurance moves. Thompson said such initiative should instead be linked to conservation programs. “The more a farmer can increase their yields or mitigate losses, the better their coverage options will be. And we don't need to cherry pick certain practices that might only work in specific regions of the country and use crop insurance to try and force all farmers into adopting the practice,” Thompson said. “We already provide nearly $6 billion per year in locally-led, incentive-based conservation programs to Title II (conservation) of the Farm Bill — that is the appropriate place to have these conversations not in Title XI, crop insurance,” Thompson added. Thompson opposes plans to use crop insurance to incentivize conservation or climate practices, saying they would "hijack the crop insurance program to carry out a half-baked environmental experiment… We don’t need to use crop insurance as a carrot or a stick to force their hand.”
• Stakeholders applauded the 508(h) process as helping to promote innovative new crop insurance products that respond to the evolving needs of farmers. Other now widely used crop insurance products like revenue insurance, dairy coverage and products for specific crops and livestock were all conceived as 508(h) experiments, with 89% of policies sold today originating as 508(h) proposals.
• Rep. Austin Scott (R-Ga.) praised the success of crop insurance, but said he hears from producers that higher levels of coverage are often too expensive for the costs. “Many fruit and vegetable farmers in my area do not have crop insurance policies available to them, leaving the Noninsured Crop Disaster Assistance Program — or NAP — as their only risk management option.”

ECB goes with 50-basis-point hike... As expected, the European Central Bank (ECB) raised interest rates for the first time since 2011. The 50-basis-point increase to the benchmark rate was higher than the 25-point rise it had flagged, though in line with reports of a bigger move reported earlier this week. The 50-point jump signals ECB feels inflation is running hotter than previously anticipated and more aggressive actions are needed to calm surging prices. Ending an eight-year experiment with negative interest rates, ECB also increased its main refinancing rate to 0.50% and promised further rate hikes possibly as soon as its next meeting on Sept. 8.

“Further normalization of interest rates will be appropriate,” ECB said. “The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions," the ECB said in a statement.

ECB also agreed to provide extra help to the 19-country currency bloc’s more indebted nations, approving a new bond purchase scheme called Transmission Protection Instrument (TPI), intended to cap the rise in their borrowing costs and limit financial fragmentation. “The scale of TPI purchases depends on the severity of the risks facing policy transmission,” ECB said. “The TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries.”