Editor’s note: The following was written by Chad Hart, Iowa State University Extension crop marketing specialist, for the August Iowa Farm Outlook newsletter.
We are again living that famous blessing or curse, “May you live in interesting times.”
Some news items are very similar to last year. Trade disputes and the lack of progress on trade agreements dominate the demand discussion. There is a round of trade aid on the way. Weather issues have significantly impacted farmer decisions. Old crop supplies remain substantial.
But a few things have changed. The weather issues were large enough that planted acreage is still unknown. The corn and soybean crops are generally one to two weeks behind in development, so we’ll need a long fall to achieve full maturity.
But the largest change is the return of potential profitability in the corn market, with cash prices hovering around $4 per bushel for harvest delivery. While the soybean market continues to feel the pressure from the U.S.-China squabble, corn prices have strengthened enough to offer good returns throughout the summer.
The combination of stronger corn prices and the U.S.-China dispute have eroded crop usage. Corn export sales are down nearly 16% from last year, with much of that decline occurring in the past couple of months as prices increased.
It’s mainly the smaller markets where we are seeing the sharpest pullback, with corn sales to countries outside of the top six markets dropping by roughly 40%. However, we have also seen reductions in our top markets as well.
South Korean sales have dropped nearly 35%, Peru (yes, Peru is our fifth largest corn market at the moment) is off by 36% and Taiwan is down 19%. These declines are only partially offset by sales increases to Mexico, Japan and Colombia.
Soybean export sales took the big hit last fall and really haven’t recovered much since then. Sales to China are still 500 million bushels below last year’s pace (a common refrain for the past 9 months). Overall, total soybean export sales are roughly 350 million bushels below last year, as increased sales to the European Union, Mexico, Egypt and Japan reduce the deficit.
And other cracks are starting to show in crop usage. Feed and residual usage for corn is projected to decline as the growth prospects for the livestock sector have slowed. The ethanol industry is feeling the squeeze of higher corn prices but stagnant ethanol prices. The lower margins, in combination with the concerns about the Renewable Fuel Standard (RFS) waivers, may put a crimp on the flow of corn through the ethanol plants.
So while the weather conditions may have lowered supplies, prices and trade prospects are limiting demand.
The big story over the next few weeks will be the guessing game, trying to figure out crop production this fall. Usually, the crop conditions statistics released in the Crop Progress reports provide a great yardstick with which to measure the crops. But with the delays in planting and maturity this year, any estimates should be taken with the entire salt block, not just a grain of salt.
As of July 29, 58% of the nation’s corn crop and 54% of the nation’s soybean crop was rated “Good” to “Excellent” in the USDA Crop Progress report. Those ratings are down significantly from last year and the five-year average.
As I have done over the past few summers, I have used the late July crop conditions reports to project the yield of the upcoming crops. And the projections this year show crops that are hovering just below the trendline. For corn, the 58% Good to Excellent rating translates to an average national yield of 170.5 bushels per acre. If realized, that would be approximately 6 bushels below last year’s yield of 176.4 bushels per acre and roughly 3.5 bushels below the 30-year trend.
For this projection to hold up, we will need a longer grain-fill window than usual. Any damage done by the recent heat wave and the potential for a freeze to catch this crop before maturity are significant limiting factors to where yields may end.
For soybeans, the 54% Good to Excellent rating points to a national yield of 47.5 bushels per acre. That would be roughly 4 bushels below last year and 1.3 bushels below the 30-year trend. As with corn, a deep autumn would likely be essential to achieve this yield. August and September precipitation will greatly affect the soybean yield outlook.
The crop conditions model for soybeans is much less precise than the corn model and the timing is different as well. For corn, the historical prediction accuracy is at its best with the late July reports. For soybeans, the model continues to improve up to harvest.