Evening Report | July 6, 2021

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Corn rating stabilizes, as expected… USDA rated 64% of the U.S. corn crop “good” to “excellent” (G/E) as of July 4, steady with the week prior and the first time ratings haven’t fallen this season. Recent rains across much of the Midwest helped stabilize the crop, with improving conditions in southern and eastern areas of the Corn Belt more offsetting the drying trend in the northwest part of the region. The amount of corn USDA rates “excellent” climbed a percentage point. But it should also be noted that USDA now rates 9% of the crop “poor” to “very poor” (P/VP), a one-point rise from the week prior. Last year at this time, 71% of the crop was rated G/E and 6% was rated P/VP.

Ten percent of the U.S. corn crop is silking, up six points from last week but behind 14% silking for the five-year average.

Soybean conditions continue to erode… As of July 4, USDA rates just 59% of the U.S. soybean crop G/E, a one-point slide from the week prior whereas analysts surveyed by Reuters anticipated a steady rating. A mix of heat and drying to the northwest and excess rainfall in some southern and eastern areas resulted in another downtick. The amount of beans in the top two categories is now 12 points shy of year-ago at this point.

USDA reports 29% of the crop is blooming and 3% of it is setting pods, which compares to 24% and 3% for the five-year average, respectively.

Half the spring wheat crop now rated P/VP… Analysts continue to be proven overly optimistic about the condition of this year’s spring wheat crop. USDA sliced another four points off the amount of crop rated G/E, with just 16% of the crop now falling in the top two categories versus analysts’ expectations for a 19% G/E rating on average. That’s still above 1988 when 7% of the crop was rated G/E, but that’s a pretty sad comparison. Of particular note, the amount of crop rated P/VP jumped 11 points to 50%, as continued dry weather and heat whittled crop prospects. Some rains fell on the Northern Plains this weekend and more rain is possible this week, but the moisture won’t do much good at this point.

USDA reports 69% of the crop was headed as of Sunday, a 21-point gain from the week prior and seven points ahead of average, with dry weather accelerating crop development.

Little change in cotton ratings… USDA again rated 52% of the U.S. cotton crop in G/E condition, but that masked a one-point shift from the excellent to the good category. And the amount of crop rated P/VP climbed three percentage points to 10%. Recent rains for West Texas helped improve ratings to some degree, with Tropical Storm Elsa expected to bring more rain to the key cotton producing state this week. But Georgia has also been dealing with too much rain, with more on the way. Last year at this time, 43% of the crop was rated G/E.

The development of the crop lags the average by a few percentage points, with 42% of it squaring and 11% of it setting bolls. In Texas, 34% of the crop is squaring compared with the usual 36%.

Winter wheat harvest inching toward half complete… Winter wheat harvest advanced 12 percentage points over the past week to 45% complete, whereas analysts expected USDA to report 47% of the crop had been cut. Progress now lags the five-year average by eight percentage points. Top-producing Kansas has harvested 62% of its crop versus the average 72% cut at this point in the season.

USDA rates 47% of the crop G/E, an unexpected one-point dip from last week. But analysts are not overly concerned about crop ratings with harvest nearing half complete. This is the last condition rating of the season.

Farm optimism fades as producers fear rising input costs, labor shortages… The Purdue University/CME Group Ag Economy Barometer fell sharply for the second month in a row, hitting a reading of 137 points in June—down 21 points from May and the weakest reading since July 2020. “Producers in June were less optimistic about both current conditions on their farming operations as well as their expectations for the future,” with the former driving the decline, according to today’s report based on a phone survey of 400 ag producers. The index for current conditions dropped to 149 points, the lowest reading since September 2020; the index for future expectations dropped to 132 points, its lowest since July 2020.

Weakening farm financial performance also caused the farm capital investment index to fall 11 points to a reading of 54, with producers planning to hold back on constructing new farm buildings and grain bins more so than farm machinery.

Despite weakening perceptions of farms’ financial performance, producers remain relatively bullish on farmland values. The short-term farmland value expectations index slipped 9 points in June to 148 points, but that’s the third-highest reading for the index since data collection began in 2015. The long-term farmland value expectations is also at its third-highest reading on record. Meanwhile, nearly one-half of corn and soybean producers expect to see farmland cash rental rates rise over the next year and among those who expect rates to rise, there is an expectation that rates will rise sharply.

Today’s update notes that 30% of producers surveyed say they expect farm input prices to climb 8% or more in the year ahead, which would quadruple the average rise over the past 10 years of 1.8%. Just 21% of those surveyed expect inputs to rise less than 2%. “Interestingly, producers expect farm input costs to rise more rapidly than prices for consumer items,” today’s update notes.

Labor shortages are another concern. This year, 66% of respondents reported “some” or a “lot of difficulty” hiring adequate labor this year versus just 30% in 2020.

Tempered expectations for Brazil’s corn exports… July is generally the month when Brazil ramps up its corn exports, but this shipping season is likely to get off to a slow start. The late-planted safrinha crop will be harvested far later than normal, plus, its size has been whittled away by drought and recent frost/freeze damage. At the start of the season, Brazil was expected to export around 33 MMT of corn. Now, the country may ship closer to 20 MMT, according to South American Crop consultant Dr. Michael Cordonnier.

He reports “Trade sources in Brazil are reporting many ‘washouts’ as exporters prefer selling to the domestic market where prices are higher.  The corn that will be exported in July is from previous contracts, but going forward, traders would rather sell to the domestic market, thus the export ‘washouts.’”

Brazil’s National Cereal Exporters Association (Anec) expects the country to export just 2.5 MMT of corn this month, which would be just half of what was shipped in July 2020.

Attaché expects another record Brazilian soybean crop and exports in 2021-22… A USDA attaché in Brazil estimates producers will boost soybean plantings by 3.9% to 40.3 million hectares (99.6 million acres), pushing production to 143.5 MMT in 2021-22. That would be up 6.5 MMT from the post’s 137 MMT estimate of this season’s record crop. The attaché expects Brazil to export a record 87 MMT of soybeans in 2020-21 and 94 MMT in 2021-22.

Biden readies orders to ease restrictions on farm equipment repairs… President Joe Biden is reportedly preparing an executive order that would give farmers more power deciding who repairs their tractors, sources briefed on the matter told Reuters. They signaled the order would encourage the Federal Trade Commission to limit the ability of farm equipment manufacturers to prevent tractor owners from doing their own repairs or hiring independent repair shops. White House Press Secretary Jen Psaki said on Tuesday the effort would help farmers "fight back against abuses of power by giant agribusiness corporations and give farmers the right to repair their own equipment how they like."

Biden also plans to direct USDA to write rules to boost competition in agricultural industries, including one in the Packers and Stockyards Act that would make it easier for farmers to bring claims. The administration also plans to direct USDA to issue new rules defining “product of USA labels” for meat. Ag Secretary Tom Vilsack signaled this was coming last week.

Asia to U.S./Europe shipping costs climbing at breakneck pace… Prices to ship containers from Asia to the U.S. and Europe are rising at a historic pace as cargo owners bid up rates in a search for ocean transportation capacity, the Wall Street Journal reports. The average price world-wide to ship a 40-foot container has more than quadrupled from a year ago, to $8,399 as of July 1, according to a global pricing index by London-based Drewry Shipping Consultants. The measure has surged 53.5% since the first week of May. Listed prices to ship from China to major ports in Europe and the U.S. West Coast are closer to $12,000 a container, by Drewry’s measure.

Shipping experts say the rising ocean rates are the result of disruptions across supply chains that triggered delays at ports and inland distribution networks as Western retailers and manufacturers rush to restock inventories that were depleted during the Covid-19 pandemic.

U.S. agricultural export, imports were nearly tied in May… U.S. agricultural exports edged up to $14.66 billion in May from $14.54 billion in April. U.S. ag imports were at $14.56 billion in May compared with $14.35 billion in April. That left a trade surplus of $95.9 million for the month, about half of the $189 million surplus reported in April. That brings fiscal year (FY) 2021 U.S. agricultural exports to $121.61 billion against imports of $105.79 billion for a cumulative surplus of $15.82 billion.

USDA has forecast FY 2021 U.S. ag exports at $164 billion and imports at $141.8 billion, which would leave a surplus of $22.2 billion. To reach the forecast marks, ag exports would need to be at $10.6 billion the next four months with imports at just $9 billion. Both marks would seem to be low based on trade data thus far in FY 2021, especially on imports with an improving U.S. economy that tends to build demand for imported goods.

Chart trend: Daily weekly and monthly charts for oats pointed higher… Find updates to our short-term, intermediate- and long-term trends for commodity and key outside markets here.