After the 97 ¾ cent break in the corn market since July’s WASDE release, it looks like the trade is confident that the tight supply situation has been resolved. This is perhaps a bit premature as they seem to speak of a “glass half full” view of both the domestic supply situation and the world view.
The USDA currently uses a trend national corn yield of 177 bushels per acre. That’s unchanged from last year, when five states managed to achieve record returns. When we compare the current good to excellent ratings of the USDA rates of the 18 states, compared to the same week a year ago, it seems highly unlikely that it will reach 177 bu. the national return is achievable. Only six states scored higher, good to excellent, than a year ago. North Dakota, South Dakota and Minnesota are seeing significant improvements from a year ago. Illinois and Wisconsin saw slight improvement while Iowa was in the middle of the pack.
North Dakota leads with a 53% increase in G/E-graded crop from a year ago. (74 vs 21 LY) South Dakota saw a 35% increase (65 vs 30 LY). Minnesota is up 25% (63 from 38 LY), Iowa is up 15% (80 from 65 LY), Wisconsin is up 4% (79 from 75 LY) and Illinois is up 3% (79 vs. 75 LY) ). The other 12 states were down between 13% and 54% from the previous year’s ratings. The national average is currently down 3 points from last year. With record heat forecast for next week, we expect ratings to continue to decline from a year ago. This will suggest that the national yield will decline.
When it comes to global numbers, the trade is also taking a “glass-full” view on the supply side. The USDA currently projects 21-22 closing stocks at 312.28 MMT and 22-23 closing stocks at 312.94 MMT. After a full production cycle, the department expects no change in ending inventory while forecasting a year-over-year drop in production of 31.97 MMT. How does it add up?
Interestingly, even with the drop in global production, they are predicting record yields or production in regions around the world, which seems overly optimistic given the weather they are having. As I mentioned above, the US yield could be too high with the weather we expect.
The European Union is experiencing unprecedented hot and dry weather this summer, suggesting its current production estimate of 68.0 MMT is too high. If this production is reached, it would only be down 2.5 MMT compared to last year. crop. We think its realistic production could be down between 5 MMT and 10 MMT from the last estimate.
The final world production wildcard in the 22-23 world production estimate is South American production. This is the crop that will be sown late this year and early next year. The USDA forecasts South American corn production at 193.5 MMT, 11.6 MMT above the largest crop on record. Time will tell if this is realistic as they are facing drought issues like we are seeing in the US and Europe.
Apart from weather conditions (which could reduce production globally), there is a real possibility that a gain in the market will be Ukraine’s exports. That’s when the world waits to see if the export corridor collapses, which would pull even more grain out of the international market until the situation in the country stabilizes.
Trade could continue to see volatile price movements over the coming months as the world tries to assess climate risk across three separate continents. All while monitoring the unpredictability of the war in Ukraine and keeping tabs on the Fed doing all it can to drive down the cost of goods, which I recently talked about here.
If you have any questions, please feel free to contact me directly at 815-665-0461 or anyone on the AgMarket.Net team at 844-4AGMRKT.
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