Evening Report | Aug. 26, 2021

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Mix of drought degradation and improvement over the past week for the Midwest… Areas of the Midwest, High Plains and West received welcome rainfall the week ended Aug. 24, leading to localized drought improvement. But many areas of the central U.S. that missed out on heavier rains saw drought conditions worsen over the past week, today’s National Drought Summary says. Temperatures were warmer than normal in the Upper Midwest and Northeast.

For the Midwest, weather varied widely on the moisture front, but the entire region saw warm temperatures, with Michigan and Minnesota recording the largest deviations from their norms. “Rain fell across roughly the southwestern half of Missouri, Iowa (north of Interstate 80), the western two-thirds of Minnesota), far southeast Ohio, and Kentucky, as well as a few other isolated spots in southern Illinois. Elsewhere, the weather was largely dry,” today’s summary notes.

Short-term moderate drought has developed in central Indiana, with recent dry weather also leading to an expansion of drought in northern Wisconsin and the Michigan Upper Peninsula. On the other hand, heavy rain resulted in drought improvement in Iowa and Minnesota, though longer-term deficits remain across much of these two states. “In some areas of northeast and southwest Minnesota that didn’t see much or any rain this week, extreme drought widened its footprint,” today’s update notes.

Rains also fell “over wide areas of Nebraska, South Dakota, North Dakota, Wyoming and western Colorado, leading to some improvements in drought conditions,” today’s update says. “Parts of the Missouri River Valley in northeast Nebraska, northwest Iowa, and southeast South Dakota did not see much rain, however, and moderate, severe, and extreme drought expanded there,” the drought summary continues.

Today’s Drought Monitor puts 42.1% of the Midwest in abnormal dryness or drought, a 3.1-point increase from last week. The High Plains are now 79.5% covered by drought/dryness, a 1.5-point increase from the week prior. Find related maps here.

Reuters reports EPA proposing retroactive lowering of 2020 RFS mandates… Reuters says two of its sources indicate EPA has proposed retroactively lowering the 2020 Renewable Fuel Standard (RFS) blending obligations in a nod to reduced fuel demand due to the Covid-19 pandemic. This would not be received well by the corn and ethanol industries. Some refiners and others like Delta Airlines have amassed massive shortfalls in Renewable Identification Numbers (RINs) needed to comply with mandates, in an apparent bet the Biden administration would either waive requirements or that RIN prices would fall. Refiners have until Jan. 31, 2022 to prove compliance with 2020 requirements.

The newswire previously reported the agency was recommending reducing mandates for 2021 from 2020 levels while raising mandates for 2022 versus the previous two years. Now the wait is for an official announcement of the actual proposed levels from EPA. That will not happen until after the Office of Management and Budget (OMB) has completed its review of the proposed levels and holds several meetings with other government agencies and those in the private sector. Proposed levels are subject to change.

EPA confirmed to news services that it has sent its proposed RFS levels to OMB for review.

RFA highlights high-octane, low-carbon fuels in EPA GHG hearing… U.S. biofuels can play a positive role in reducing auto emissions, particularly high-octane, low-carbon fuels like ethanol, the Renewable Fuels Association (RFA) testified at a hearing Wednesday put on by EPA on their emissions standards for 2023-2026 light-duty vehicles. “If our nation is to reach its goal of net-zero GHG emissions by mid-century, we’ll need both cleaner, more efficient cars and cleaner, more efficient fuels,” RFA President and CEO Geoff Cooper said in prepared remarks.

Cooper said it was disappointing that EPA only focused on engines and vehicles while ignoring what he said was the important impact that fuels have on emissions and mileage. “Unfortunately, EPA’s proposal fails to recognize that the fuels we put into our engines can have as much—or more—impact on fuel economy and GHG emissions as the engine technologies themselves,” Cooper said. “The proposed rule counts on broad deployment of high-compression ratio engines that will require high-octane fuel but does nothing to ensure those high-octane fuels will actually be produced and available in the marketplace.”

Cooper also said the agency needed to focus on higher-octane fuels for model years beyond 2027 to address emissions and encourage automakers to make more engines that use such fuels.

Agri Foods Canada (finally) acknowledges heat, drought have slashed its wheat and canola crops… Agriculture and Agri-Food Canada, the equivalent of USDA’s World Board, in its latest outlook report projected total field crop production would likely dive 27% in 2021-22 “as the overall drought in Western Canada worsened considerably throughout July, with most of the Canadian Prairies growing region experiencing record low levels of precipitation and record-breaking temperatures.”

Consequently, Agri-Food Canada expects Canada’s 2021-22 all wheat crop to drop 15.01 MMT (42.7%) from last season to 20.18 MMT. That includes a durum wheat crop forecast of 3.83 MMT. The country expects to export 14.1 MMT of wheat in 2021-22, roughly half of last year’s shipments. While demand from the U.S. is expected to be high (especially for durum wheat), reduced crop prospects are expected to limit shipments.

Canada will likely harvest a 15.00 MMT canola crop in 2021-22, a 10-year low and a 3.72-MMT (19.9%) drop from the 2020-21 season, despite an 8% rise in planted acres, according to Agri-Food Canada. Strong food and industrial use and export demand are expected to match production, dwindling carryout stocks to 700,000 MT—matching the 2020-21 season’s thin carryover. Of note, preliminary data signals Canada crushed a record 10.2 MMT of canola in 2020-21 and exported 10.9 MMT, which would be the second highest shipments on record.

Adverse weather expected to cut Canadian crop prospects notably from 2020… Statistic Canada will issue survey-based estimates for the country’s crops on Aug. 30 at 7:30 a.m. CT. The following expectations are based on a Reuters survey. The wide range of trade estimates speaks to uncertainty regarding how much impact drought and some recent freezing temperatures had on crops. Production of all major crops is expected to slide notably from the 2020 season.

IGC lowers global wheat crop forecast for 2021-22… The International Grains Council (IGC) cut its forecast for the 2021-22 global wheat crop by slightly under 1% (6 MMT), reflecting diminished crop prospects in Russia, Canada and the United States. IGC now pegs global production a 782 million MT. IGC also trimmed its trade and consumption forecasts, limiting the drop in its ending stocks projection to 2 MMT, with carryover projected at 278 MMT for 2021-22.

The group made few changes to its global corn balance sheet for 2021-22, with production still estimated at 1.202 billion MT and carryover stocks projected at 270 MMT. Ending stocks would be up just 1 MMT from last year’s thin cushion and down 28 MMT (9%) from the 2019-20 season.

IGC lowered its forecast for global soybean production in 2021-22 by 2 MMT to 380 MMT on “downgraded outlooks for the U.S., Argentina and India.” That would still represent a new peak and an 18 MMT (5%) jump from 2020-21. IGC also lowered projected use by 2 MMT in 2021-22. That paired with larger carry-in stocks from 2020-21 (on a smaller trade forecast) helped push IGC’s soybean carryover projection 3 MMT higher to 57 MMT, a 4-MMT (8%) increase from 2020-21.

New definition of agricultural trade alters trade data, forecasts… USDA has adopted the World Trade Organization definition of agricultural products as it pertains to U.S. ag export and import data. USDA's Outlook for U.S. Ag Trade released today reflects that change. The result is that fiscal year (FY) 2021 U.S. ag exports are forecast at a record $173.5 billion against record imports of $157.5 billion. That implies an ag trade surplus of $16 billion. In May, using the old definition of agricultural products, the forecast was for exports of $164.0 billion against imports of $141.8 billion for a surplus of $22.2 billion.

For FY 2022, USDA's first forecast (also using the updated definition of ag products) is for exports at a new record of $177.5 billion against imports at a record $157.5 billion, which projects to an $18 billion surplus.

The other impact of the new definition? U.S. agriculture registered trade deficits in both FY 2019 and 2020.

Pentagon confirms explosion at Kabul airport resulted in U.S. and civilian casualties… At least three U.S. Marines have been injured, a dozen people have reportedly been killed, and many more wounded after two explosions rocked the Abbey Gate of Hamid Karzai International Airport in Afghanistan and a hotel within proximity of the gate.

U.S. 2Q GDP revised up slightly… U.S. GDP in the second quarter was revised up to 6.6% from the initial 6.5% level, reflecting stronger consumer spending and exports compared with data for the initial estimate issued last month. Despite the second quarter data, unease still exists on third quarter prospects due to the Delta variant of Covid and continued labor and materials shortages that have driven up prices for a host of goods. But the third quarter pace may not falter much from the second-quarter mark.

Filings for initial jobless benefits edge higher for first time in a month-plus… The number of Americans newly seeking jobless benefits edged slightly up last week from a pandemic-era low as the labor market fights to recover amid concerns over the surge in Covid-19 cases driven by the Delta variant. Initial filings for unemployment benefits, seen as a proxy for layoffs, reached 353,000 last week, up 4,000 from the prior week’s revised level of 349,000. It’s the first increase in weekly new claims in over a month as the labor market mounted a strong recovery in July and August that saw claims hit a pandemic-era low.

Fast food prices climbing… When President Donald Trump left office, the average price for an order of large French fries at McDonald’s was $1.89. A double quarter pounder with cheese cost $4.79, a Big Mac $3.99, Filet O’ Fish $3.79. As millions of Americans who frequent the fast-food chain today have recognized, their bill is much higher. A large French fry averages $3.89 — a whopping 106% increase from just a year ago. A double quarter pounder with cheese is now $6.79, a Big Mac $5.59, Filet O Fish $5.29 — all about $2 higher than 2020.

McDonald’s isn’t the only fast-food chain raising prices. Chipotle implemented a 4% price increase across its menu in June. Taco Bell’s food now costs consumers 10% more, the cost of donuts and coffee at Dunkin’ Donuts has spiked 8%, according to a Gordon Haskett analysis, which evaluated 24 restaurant chains over the span of a year. The analysis found quick-service restaurants made the largest price increases, averaging 6%, and most were implemented in March.

Iowa Cattlemen pushing for inclusion of custom cattle feeders in CFAP 2… The Iowa Cattlemen’s Association sent a letter to Ag Secretary Tom Vilsack regarding the lack of pandemic relief for custom cattle feeders earlier this week. The letter notes, “USDA has modified and extended the Coronavirus Food Assistance Program (CFAP) 2 more than once. Most recently, the deadline to apply for or modify an existing application was extended to Oct. 12, 2021. However, this does not apply to custom cattle feeders. … while swine and poultry contract growers are eligible to receive aid, custom cattle feeders remain unassisted.” The group is urging Vilsack to include custom cattle feeders as part of any upcoming assistance plans.

Corteva and Indigo Ag expand carbon credit program… Corteva Inc. announced it will partner with the farm technology and services provider Indigo Ag to broaden its U.S. ag carbon credits program for the 2022 growing season. The partnership will expand Corteva’s two-crop pilot project in three states this year to 11 states next year covering 17 different crops. The Corteva Carbon Initiative will initially pay farmers roughly $15 an acre for shifting to practices that pollute less, use fewer chemicals or store carbon in the soil, the company said. Credits will be sold to companies working to reduce their carbon footprint.

Those interested in participating must sign up for a five-year minimum term, with payments distributed gradually over that timeframe. Farmers will receive 75% of the credit value, with the remaining 25% going to the companies to cover administrative costs.

The program will rely on soil tests and farming data on planting dates, fertilizer applications, seed types, etc. to measure carbon capture.