Evening Report | June 29, 2023

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Drought continues to spread and intensify over corn, soybean areas... As of June 27, the Drought Monitor showed 54% of the U.S. was covered by abnormal dryness/drought, down two percentage point from the previous week. Drought continues to expand across corn and soybean areas. USDA estimated drought (D1 or higher) covered 70% of corn production areas (up six points from last week), 63% of soybeans (up six points), 15% of spring wheat (unchanged) and 18% of cotton areas (up two points).

For the Midwest, the Drought Monitor noted: “Heavy rains in parts of Ohio and Kentucky led to some improvements in ongoing short-term drought. Otherwise, much of the region saw conditions stay the same or worsen this week, especially in central Indiana, Illinois, Missouri, southwest Wisconsin, southeast Minnesota and southeast Iowa. Almost completely dry weather in Missouri and the southern two-thirds of Illinois led to widespread degradations, where streamflow and soil moisture continued to decrease amid mounting precipitation deficits, creating potential problems for corn and soybean production this growing season. In Missouri, cold weather in December and April have combined with the ongoing drought to lead to a 70% reduction in wine production. Hay production in Missouri was also reported to be one-third of normal. In southeast Iowa, producers reported rolling corn leaves and stunted soybean plants. In the Upper Midwest states, strawberry production was also struggling.”

For the Plains, the Drought Monitor stated: “Much of the Great Plains portion of the region, with the exception of eastern Nebraska and eastern Kansas, saw widespread precipitation, some of it heavy. Much of northwest Nebraska, eastern Wyoming, northeast Colorado, South Dakota and the southern half of North Dakota saw rainfall of at least 2 inches over the last week. In western Nebraska, eastern Wyoming and the Dakotas, this led to widespread improvements to the drought depiction in areas where the heaviest rains fell. Isolated heavy rains in central and western Kansas also led to localized improvements to ongoing drought areas. Meanwhile, conditions continued to worsen in southeast Nebraska, northeast Kansas and the Kansas City area, where mostly dry weather continued. Given continued decreases in soil moisture and groundwater, and growing short- and long-term precipitation deficits, exceptional drought was introduced in parts of the Omaha metropolitan area.”

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IGC cuts global corn crop forecast... The International Grains Council (IGC) cut its 2023-24 global corn crop forecast, reflecting reduced production potential in the U.S. due to drought conditions. IGC forecasts global corn production at 1.211 billion metric tons, down 6 million metric tons (MMT) from its previous expectations but that would still be up 55 MMT (4.8%) from last year. IGC cut its U.S. corn production forecast 8.4 MMT to 373.4 MMT (14.712 billion bushels).

IGC raised its 2023-24 global wheat production estimate 3 MMT to 786 MMT, due mostly to an improved crop outlook in Ukraine. Wheat production is still expected to decline 17 MMT (2.1%) from last year.

H&P Report: Hog herd slightly bigger than year-ago... USDA’s Hogs & Pigs Report estimated the June 1 U.S. hog herd at 72.394 million head, up 80,000 head (0.1%) from year-ago and 586,000 head more than the average pre-report estimate implied. The breeding herd was 0.4% smaller than last year but market hog inventories increased 103,000 head (0.2%).

The spring pig crop increased 111,000 head (0.3%) from last year, as a 3.3% jump in pigs per litter more than offset a 2.4% decline in sow farrowings. The spring pigs per litter number was an all-time record.

Looking forward, the smaller breeding herd and lower farrowing intentions for summer and fall suggest the increase in pig crop size is a short-term occurrence, not a change in pattern.

Based on the market hog inventory, hog slaughter should run about even with year-ago during the second half of the year, though it could inch slightly above last year’s levels from mid-summer through year-end.

USDA made the following revisions to past data: The March 1 hog population was revised up 249,000 head (0.3%), whereas the March 1 breeding herd was trimmed by 31,000 (0.5%). This put the market hog inventory at 67.014 million, up 280,000 or 0.4%.  The Dec. 1, 2022 hog herd was boosted by 450,000 head (0.6%) to 74.849 million head. That reflected a 490,000-head (0.7%) revision higher to the market hog population and a 40,000-head (0.7%) cut to the breeding herd. The December revisions to the hog numbers reflected a 470,000-head (1.4%) upward revision to the Sept.-Nov. 2022 pig crop to 34.701 million head. That stemmed from a 40,000-head (1.3%) upward revision to fall 2022 farrowings.  

Update on farm bill... With Congress out for the July 4th recess, following is the bottom line on the farm bill process.

• Chairs of both the House and Senate Ag panels want a bill this year, but odds of at least a short-term extension are growing.
• Farm groups and some farm-state lawmakers prefer a farm bill extension versus a baseline farm bill that offers no extra funding to improve the Title I safety net.
• Senate Ag Chair Debbie Stabenow (D-Mich.) said she is committed to protecting the critical investments in the IRA for their intended purposes. If she can maximize those investments, she is open to conversations. During a Bloomberg event last week Stabenow said: “From my perspective, we’re talking about how we could move that in some form into long-term baseline so farmers can benefit from that and keep all of the opportunities in terms of addressing the climate which our farmers want to do, they’re anxious to do.”
• House Ag Chair Glenn “GT” Thompson (R-Pa.) told AgriTalk he and his staff are looking at farm bill “efficiencies” that could garner more funding for Title 1 and other priority needs. But Dr. Bart Fischer of Texas A&M University said farm bills in the past have done the same worthwhile review, “but not nearly enough funding can be found to truly improve the Title I safety net.”
• Thompson has signaled he is working with House Budget Chair Jodey Arrington (R-Texas) regarding ag disaster funding and the crop insurance program.
• The farm bill’s fate will be known by late August/early September as to whether sufficient funding for critical needs can be found to draft a new farm bill.

Bottom line: There is also a question of whether waiting will truly give farm bill writers a bigger baseline to write the bill with than they have now. And Fischer’s observations are correct in that prior efforts to shift funds within the bill to other priorities has not yielded the hoped-for results, a surprising development in what is widely expected to be a measure that carries a price tag upwards of $1.5 trillion. Also, farm bill writers are behind the eight ball but not totally of their own fault. Other events dominated the focus in Washington this year at a time when the details of the legislation should have been written if an on-time bill was going to be the most-likely outcome. Budget uncertainty on a farm bill is never a positive. It can lead to policy decisions that become muted or minimally effective as lawmakers seek to pair programs with available dollars.

EPA releases more info on WOTUS rule... Earlier this week we reported that EPA plans to revise the “waters of the United States” (WOTUS) regulation, which determines the extent to which anti-pollution laws apply upstream, by Sept. 1. EPA has not released a statement about the matter. This move follows a Supreme Court (SCOTUS) ruling that limits federal protection of wetlands.

In its May 25 decision, SCOTUS said the 1972 Clean Water Act (CWA) only applies to marsh-like areas with a direct connection to bodies of water such as streams, oceans, rivers, or lakes. This deviates from the previous standard set by a 2006 ruling, which talked about a “significant nexus” between a land tract and a waterway.

EPA comments: “EPA (and) the Army Corps of Engineers remain fully committed to ensuring that all people have access to clean, safe water. We will never waver from that responsibility. The agencies are interpreting ‘waters of the United States’ consistent with the Supreme Court’s decision.”

Study: Plans for controlling an ASF outbreak did not halt its progress... A study by North Carolina State University suggests the current U.S. control measures may not be sufficient to completely halt the progress of an outbreak of African swine fever (ASF) within 140 days. While the measures taken, such as limiting animal movement and depopulation, managed to reduce the ASF spread by nearly 80% in computer simulations, only 20% of the virtual models had the virus completely under control by the end of this period.

These results, as pointed out by Gustavo Machado, an assistant professor of population health and pathobiology at the university, indicate that while containment of ASF is possible, it could take longer than initially projected. The university is currently revising its simulation model with updated data and parameters to explore possibilities of controlling the virus within various timeframes.

The initial simulation, which was funded by USDA and based on data from over 2,000 real-world farms and records of past diseases, showed that close contact between pigs accounted for 71.1% of theoretical ASF cases. Other causes included the indirect spread through contaminated transportation (14.4%), and local transmission factors (14.6%).

The study also emphasized the role of pre-outbreak testing and screening measures. Although the cost of testing every animal may be high, the U.S. should continue to enhance existing surveillance measures and train more personnel in sample collection and analysis. The study particularly advised stricter controls for high-risk farms where animals comingle extensively, which could help detect and manage outbreaks earlier.

Survey shows production costs a concern for ag economists... The Ag Economists’ Monthly Monitor, a new survey of nearly 50 agricultural economists from across the country, is a joint effort between the University of Missouri and Farm Journal. The June monitor shows the perceived financial health of U.S. agriculture has moved slightly lower over the past year, and economists expect that trend to continue over the next 12 months.

Highlights from the first Ag Economists’ Monthly Monitor include:

• The perceived financial health of U.S. agriculture is trending lower and is expected to continue to decline over the next 12 months.
• Production costs, global competition, geopolitical risks, drought and demand headwinds are among the main drivers.
• The majority of agricultural economists expect farm income to drift lower, with some expecting levels to land closer to the five-year average in 2024.
• High production expenses are the biggest obstacle in 2023.
• 2023 crop yield estimates vary widely among the economists surveyed.
• Economists expect crop prices to drift lower in 2023 and 2024.
• Beef cow supplies are forecast to continue to decline this year.

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China considering broad-based food security law...  China is considering the introduction of a broad-based food security law in response to burgeoning threats to the nation's food supply. These threats stem from various factors such as trade disputes, climate change impacts, and disease outbreaks.

A key intention of the proposed law is to centralize and strengthen the country’s scattered agricultural and national security laws, specifically those concerning food security. Core issues this law aims to address are grain production, processing, preservation and the protection of agricultural land. These areas have been considered critical to maintaining the country’s food supply amidst concerns of an inability to sustain the current consumption habits and lifestyle changes.

The draft envisions the creation of a national agriculture germplasm bank, an enclosed space for preserving living plant tissue, to support grain production. The proposed law also seeks to enhance grain storage, distribution and emergency food supply mechanisms. To curb food wastage, this draft law includes measures to outrightly ban the illegal destruction of immature grain crops often caused by early harvest for land earmarked for construction projects.

Once enacted, this law aims to solidify the legal framework underpinning food security. According to state media China Daily, this move will actualize the Chinese citizens’ vision for better and more stable food supply.

U.S. Q1 GDP stronger than expected... The U.S. economy grew by an annualized 2% in the first quarter of this year, well above 1.3% in the second estimate and forecasts of 1.4%. The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending. Imports were revised down.