Evening Report | Aug. 2, 2021

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Hot, dry weather for northwest Corn Belt again drags down corn ratings… Last week’s heat and lingering dryness took more of a toll on the U.S. corn crop than analysts surveyed by Reuters anticipated, on average. USDA now rates 62% of the crop “good” or “excellent,” a two-point decline versus the one-point dip analysts anticipated. The amount of crop rated “poor” to “very poor” (P/VP) also edged a point higher to 11%. Of the top producing states, North Dakota is hardest-hit, with just 18% of the crop rated G/E, followed by South Dakota at 32% and Minnesota at just 36% G/E.

Recent heat has also accelerated crop development. USDA reports 91% of the crop is silking and 38% of it is in dough, both of which are five points more advanced than the five-year average.

Soybean condition ratings unexpectedly improve… Rains for some areas of the Midwest helped to offset heat, with USDA’s G/E rating climbing two percentage points the week ended Aug. 1 to 60%. Analysts expected a one-point slide in ratings. USDA still rates 12% of the crop P/VP.

Crop development is a bit more advanced than is typically the case at this point in the season, with 58% of the bean crop setting pods versus the usual 52%.

Cotton ratings edge down… Cotton condition ratings edged a point lower as of Sunday to a still-solid 60% G/E. USDA again rated just 8% of the crop P/VP, steady with last week.

Crop development continues to lag the norm, despite a drier week with some sunshine. USDA reports 82% of the crop is squaring and 50% of it is setting bolls. That compares to 90% squaring and 53% setting bolls on average over the past five years.

Spring wheat ratings unexpectedly improve… After weeks of surprising to the downside, spring wheat condition ratings unexpectedly improved. USDA reports 10% of the crop is now rated G/E, a one-point rise from the week prior whereas analysts polled by Reuters expected a one-point dip. USDA now rates 64% of the crop P/VP, a two-point decline from the week prior. It’s unclear whether the improvement was driven by the omission of some acres that are being abandoned or hayed or if recent rains in the Dakotas indeed aided crops.

Harvest of the small, parched crop advanced rapidly over the past week, with progress jumping 14 percentage points ahead to 17% complete. That compares to 8% finished on average for this time of year. Analysts polled by Reuters expected USDA to report 11% of the crop had been cut.

Winter wheat harvest nearing in the homestretch… Winter wheat harvest advanced seven percentage points over the past week to 91% complete, which was right in line with expectations. Kansas, Texas and Oklahoma have all wrapped up harvest.

AgRural calling for nearly a 20% year-over-year drop in Brazil’s corn crop… AgRural now estimates Brazil’s 2020-21 corn crop at 82.2 MMT, which is down 3.1 MMT from July 1 and 20.4 MMT (19.9%) under year-ago. The late-planted safrinha corn crop was hit first by drought then by a series of frosts, slashing crop prospects.

Harvest across Brazil’s Center-South advanced 10 percentage points the week ended July 29 to 49% complete, AgRural reports. Last year at this point, 61% of the crop had been collected. Scattered rain and cool temperatures have limited drying and harvest of the crop. Such conditions open the door for additional quality degradation.

Brazil’s July exports of soybean and corn come up well shy of year-ago… Government data shows Brazil exported 8.666 MMT of soybeans during July, which was down 1.289 MMT (13.0%) from year-ago. The country’s corn exports also came in well shy of year-ago at just 1.983 MMT, which was less than half of last year’s 3.979 MMT for the month.

Big drop in SovEcon’s Russian wheat crop forecast on smaller acreage and drought… Ag markets research firm SovEcon slashed its Russian wheat crop forecast by 5.9 MMT, dropping its production forecast to 76.4 MMT. The firm said a “substantially” smaller winter wheat area reported by the country’s statistical agency was to blame for 4 MMT of the cut. The other 1.9 MMT was due to hot, dry weather during July diminishing yield potential for the country’s spring and in some cases winter wheat crops. USDA in July estimated Russia’s wheat crop at 85 MMT, but since then crop conditions have eroded and official acreage estimates have come down.

Andrey Sizov, head of SovEcon, notes that in an unusual turn of events, winterkill exceeded expectations, resulting in an “unexpectedly small pre-harvest winter wheat area.” He says worsening drought in Russia and Canada may not be fully reflected in global wheat prices.

Soy processing slows more than anticipated in June… U.S. processors crushed 161.7 million bu. (4.85 million short tons) of soybeans during June, which was lighter than the 162.1 million bu. analysts surveyed by Reuters were anticipating. That’s also a substantial drop from May when 173.5 million bu. of soybeans were crushed and year-ago when crush totaled 177.3 million bu., as tight soybean stocks and high prices have limited processing.

But while processing fell short of expectations, soyoil stocks ended June at 2.100 billion lbs., which topped expectations by nearly 106 million pounds. That was down 2.2% from the end of May and 7.5% from year-ago.

Disappointing ethanol production numbers… Today’s USDA Grain Crushings Report showed 439.9 million bu. of corn were used for ethanol during June, which was a bit lighter than the 448.0 million bu. analysts surveyed by Bloomberg expected on average. Ethanol consumption dipped 2.0% from May, which contained one more day than June. But consumption soared 16.0% from year-ago when Covid-19 restrictions were keeping Americans from traveling.

For the first 10 months of 2020-21, corn-for-ethanol use totaled 4.166 billion bu., up from last year’s 4.021 billion bu. at this point. The balance to reach USDA’s forecast for ethanol use of 5.050 billion bu. is 884.1 million bushels. July 2021 consumption is on pace to reach 460 million to 470 million bushels. However, ethanol production slowed in late July. If that continues, August production may more closely match June’s total near 440 million bu. than our higher July forecast.

Given the disappointing June crush and the slowing ethanol production pace, we have lowered our 2020-21 corn-for-ethanol production forecast by 25 million bu. to 5.075 billion bushels.

The report also showed 1.93 MMT of distillers dried grains with solubles were produced during June, a 0.7% dip from May and a 16.0% jump from June 2020.

PLC payments triggered for 2020 wheat, barley... Payments were triggered under the Price Loss Coverage (PLC) program for 2020 wheat and barley, but not for oats. For wheat, a payment of 45 cents per bu. was triggered based on the difference between the reference price of $5.50 and the marketing year average (MYA) price of $5.05. For barley, the 20 cent per bu. payment came as the MYA price was $4.75 and the reference price is $4.95. The MYA for oats was $2.77 against a reference price of $2.40.

DMC payments triggered again in June for several coverage levels… Dairy Margin Coverage (DMC) payments have been triggered for June as the national average margin was calculated at $6.24 per hundredweight (cwt.). DMC payments are triggered when the national margin is under the producer-selected margin trigger—from $4.00 to $9.50 per cwt. for Tier 1 and from $4.00 to $8.00 per cwt. for Tier 2. With the June national margin of $6.24, eligible producers would receive payments based on the amount of covered production history and the margin level elected by the dairy operation.

Payments under Tier 1 will be from 26 cents per cwt. for those with a $6.50 margin trigger coverage level to $3.26 per cwt. for those with a $9.50 margin trigger coverage level. Payments under Tier 2 will range from 26 cents per cwt. for those with a $6.50 margin trigger coverage level and $1.76 for those with an $8 margin trigger coverage level.

DMC payments have been triggered every month in 2021 after payments were triggered in March through May, September and December in 2020.

EU to keep duties on U.S. biodiesel another five years… The European Union (EU) will keep tariffs on U.S. biodiesel until 2026 under a notice published in the EU official journal today. The European Commission concluded that removing the import tariffs would result in a surge in shipments into the EU as U.S. producers could boost their capacity and increase shipments to the EU and shift exports away from other destinations. The antidumping duties are from zero to 198 euros ($235.36) per MT, with anti-subsidy duties from 211.2 to 237.0 euros per MT. The tariffs are not cumulative, so the higher rate of the two will be applied. The EU has had the duties in place since 2009.

If Powell’s Fed chairmanship isn’t extended, here’s why… President Joe Biden’s looming decision about who should be the next Federal Reserve chairman is prompting reviews of the current chief’s record on bank regulation. Some progressive Democrats say Chair Jerome Powell’s Fed has not been tough enough on large financial firms. Fed governor Lael Brainard has emerged as the most likely candidate to succeed him should Biden decide he would prefer his own pick rather than the leader chosen by former President Donald Trump. The Wall Street Journal notes that Brainard has regularly dissented against Powell's decisions to ease bank regulations.