Evening Report | June 24, 2021

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Rains for the eastern Corn Belt, but western Belt still drying out… Severe thunderstorms affected parts of northern Illinois, northern Indiana, northern Ohio and southern Michigan on June 20, the U.S. Drought Monitor noted. While the system did come along with some wind and hail damage, it also delivered beneficial rainfall to areas dealing with moderate, severe and extreme drought. “Notably, extreme (D3) and severe drought coverage decreased in northern Illinois and southern Lower Michigan, due to improved conditions after the storms,” the Drought Monitor detailed. But other Midwest areas continued to dry out. “Severe drought expanded across parts of northern Iowa, southern Minnesota, and northwest Minnesota, due to worsening precipitation deficits and vegetation conditions,” today’s update says.

Iowa remains 76.2% covered by moderate to severe drought, with another 16.3% of the state dealing with abnormal dryness. All of Minnesota is covered by abnormal dryness or drought, with the key southern areas of the state particularly hard-hit. On the other hand, Illinois is 76.4% drought/dryness free, with drought confined to the state’s northernmost counties. Rains over the next 10 days are again expected to favor eastern and southern areas of the Midwest, and forecasts for July and August point to building stress in the western Corn Belt, according to World Weather Inc.

Today’s Drought Monitor update described rainfall the week ended June 22 as “paltry” for the High Plains region that continues to struggle with moisture deficits. In addition, temperatures were warmer than usual across much of Nebraska, Kansas and western South Dakota. This combination led to the worsening of abnormal dryness and drought in these areas, with some extreme drought developing along the Missouri River in northern Nebraska and southern South Dakota. Extreme and exceptional drought still encompass North Dakota, with drought also expanding and intensifying in spring-wheat producing Wyoming. A striking 63.6% of North Dakota is impacted by extreme or exceptional drought, and prospects for relief are limited.

Tropical Storm Claudette made landfall in the Central Gulf Coast last weekend, bringing “widespread improvement to drought conditions in North Carolina and South Carolina, as well as improved conditions in northern Florida and southern Georgia,” according to the Drought Monitor update. But in areas of the South not impacted by Claudette like the Texas Panhandle and northwest Oklahoma, rainfall was scarce, and temperatures were warm. Find related maps here.

IGC raises its global corn crop forecast for 2021-22… International Grains Council (IGC) lowered its total grains carryover forecast for 2020-21 by 4 MMT, dropping its projection to 595 MMT. The council cut production by 3 MMT from last month, citing lower Brazilian corn crop prospects, while also raising total consumption on higher expected imports of corn, barley and sorghum by China.

Total grains carryover is expected to inch 2 MMT higher to 597 MMT in 2021-22, in part due to higher global production forecasts for corn and minor grains. More specifically, IGC trimmed its global wheat production forecast by 1 MMT to 789 MMT and it raised its trade projection, dropping its wheat carryover stocks projection for 2021-22 from 288 MMT to 283 MMT, which would be a 2-MMT increase from the previous season.

On corn, IGC hiked its global production forecast by 9 MMT (largely driven by China) to 1.201 billion MT. It also trimmed its trade forecast by 3 MMT but boosted consumption by nearly the same amount. IGC’s corn ending stocks forecast climbed 3 MMT to 267 MMT.

On soybeans, IGC raised its 2020-21 soybean crop estimate slightly to 363 MMT, citing higher South American production estimates. It still expects record global soybean production of 383 MMT in 2021-22, with a year-over-year rise in trade and consumption expected to limit the increase in 2021-22 ending stocks to 6 MMT, with carryover expected to total 53 MMT. That’s up just 2 MMT from 2019-20, despite a 44-MMT surge in production over that two-year span.

Biden and bipartisan group of lawmakers reach deal on infrastructure… Today, President Joe Biden announced he had reached a deal on infrastructure with a bipartisan group of lawmakers. The measure includes $579 billion in new spending on infrastructure, for a total price tag of $1.2 trillion over eight years.

The measure focuses on traditional infrastructure like roads, bridges, rail and broadband and it includes $7.5 billion for electric vehicle infrastructure. Rather than raising taxes on corporations, the measure would be paid for via unused Covid-19 relief money, increased tax compliance and user fees, among other measures. Details are still lacking. 

Biden and business groups encouraged Congress to quickly pass the proposal. He said the infrastructure bill will move on a “dual track” with a separate spending package advancing Democratic priorities.  Business groups generally applauded the proposal. The news is likely to anger some far-left lawmakers who had hoped for a much larger, one-party approach to infrastructure to be paid for via higher corporate taxes.

The verdict is still out as to whether key players like Senate Majority Leader Chuck Schumer (D-N.Y.) and Senate Minority Leader Mitch McConnell (R-Ky.) will endorse the deal.

USDA launches pilot program supporting voluntary conservation practices… Today, USDA announced it will provide $10 million in funding to support “climate-smart agriculture and forestry through voluntary conservation practices in 10 targeted states.” The aid is available through the Environmental Quality Incentives Program and it’s meant to help producers plan and implement voluntary conservation practices that sequester carbon, lower greenhouse gas emissions and mitigate the impacts of climate change on working lands, according to USDA.

The program is open to farmers in Arkansas, Florida, Georgia, Michigan, Minnesota, Mississippi, Montana, North Carolina, Pennsylvania and Wisconsin. Each state will determine its own signup period, with signups expected to begin on or around June 24 for most states. The pilot program will be expanded to a comprehensive effort across all states in fiscal year 2022, which begins this October. Find more details here.

Senate passes the Growing Climate Solutions Act… Today, the Senate passed the Growing Climate Solutions Act, a measure proposing a certification program at USDA to mitigate technical entry barriers for farmer and forest landowner participation in carbon credit markets. House Ag Chairman GT Thompson (R-Pa.) believes the effort is premature, saying in a statement: “This bill is a big-government solution in search of a problem. The consequences of government intrusion into voluntary carbon markets have not been adequately explored and Congress should continue educating itself and vetting these issues before legislating.” A companion bill was introduced in the House in April, but it has not yet been taken up for a vote.

Hogs & Pigs Report: U.S. hog herd down 2.2% from year-ago… USDA estimates the U.S. hog herd at 75.653 million head as of June 1, down 1.711 million head (2.2%) from last year. The market hog inventory at 69.423 million head declined 1.615 million head (2.3%), while the breeding herd at 6.230 million head dropped 96,000 head (1.5%). Those figures were basically in line with pre-report estimates.

The spring pig crop came in smaller than anticipated, down 1.060 million head (3.1%) from last year at 33.584 million head. Farrowings in the March-May period fell 2.6%, which is basically in line with what USDA estimated in March. The number of pigs saved per litter slipped 0.5%, whereas traders expected the figure to be up that amount versus the March-May 2020 period.

Traders expected inventories for market hogs above 120 lbs. to be down roughly 4.5% to 5.5%, Instead, USDA reported them down 1.5%, suggesting the near-term slaughter supply will be greater than anticipated, though they continue to lag year-ago levels. USDA’s data implies slaughter numbers will slide to around 3% under year-ago through fall and winter.

Producers told USDA they intend to reduce the number of sows farrowed by 4.4% during summer and 1.8% next fall. Both of those were slightly bigger-than-expected reductions. Producers have had a history of overshooting their farrowing intentions, though as we noted above, spring farrowings were true to intentions given to USDA.

Based on the final pig crop, official slaughter, death loss and updated import and export data, USDA reduced the Dec. 1, 2020 hog inventory by 300,000 head (0.6%) due to a smaller September-November 2020 pig crop. USDA increased the March 2021 hog inventory by 140,000 head (0.2%).

There’s nothing in this data to greatly move the hog market. Though near-term slaughter numbers will be greater than anticipated based on heavyweight market hog inventories, the sharp price slide into the report could attract some corrective buying given the huge discounts summer-month futures hold to the cash market.

Marketings are expected to surge vs. year-ago but decline compared to May 2019… On average, analysts surveyed by Reuters expect USDA’s Cattle on Feed Report to show there were around 11.729 million head of cattle on feed as of June 1, which would be a 0.5% rise from year-ago. Compared with June 1, 2019 levels, the number of cattle on feed would down 11,000 head. Comparisons to year-ago are skewed by 2020’s Covid-19-related processing disruptions as well as shifts in consumption patterns. Placements are expected to slide 4.6% from year-ago and 5.1% from two years ago. Marketings are expected to surge 23.4% from year-ago but slide 9.7% compared to May 2019 levels. The report will be released at 2:00 p.m. CT Friday.