The market needs to rally, analyst says
All doubt about the US drought was removed Monday in the Crop Progress Report, as once again corn (-3% to 63% G/E) and soybeans (-4% to 56% G/E) both declined significantly.
That drops the Pro Ag yield models a large 0.73 bu/acre in soybeans (to 41.8 bu) and a large 2.21 bu/acre in corn (to 155.9 bu/acre). These yields are well below 'trend' and current USDA projections of 166 bu/acre corn and 43.9 bu/acre soybeans. If the final yield turns out that low, prices would need to allocate the short US crop among competing interests. And the season is still in June, with a warm/dry forecast ahead for the next two weeks!
Clearly the market needs to rally, and so far this week it accommodated, despite zero support from outside markets. But, we are in the middle of a serious Corn Belt drought in the central and eastern corn belt, with topsoil moisture depleted as we enter the pollination stage for corn and bloom for soybeans. Note that 5% of soybeans are now blooming (vs. 2% average) and 5% of the corn is silking (vs. 2% average), so this is now the critical time period in development of the corn and soybean crops in southern states. And we are in the middle of drought in the southern Corn Belt!
The only bright spot in the US crop development, so far, is wheat. The conditions improved in winter wheat 1% to 54% G/E, with winter wheat now 48% harvested (vs. only 16% average) which shows that yields are better than expected. The Pro Ag winter wheat yield model jumped 0.20 bu/acre to 48.9 bu/acre, a new record shattering yield. This drought does not include wheat crops, as they reached maturity for the most part in winter wheat and the drought is not in HRS wheat country (the Dakotas, MN, WI are the garden spots of the Corn Belt!). Illustrating that is easy by just looking at crop conditions: HRS wheat IMPROVED 1% to 76% G/E, while barley conditions improved 3% to 67% G/E, with rains frequent in the HRS wheat belt last week. Basically, the rain is falling all around the corn belt, but not in the central and eastern Corn Belt (a blocking pattern?
Dome of doom?). Note, cotton is also not part of the drought, with conditions improving 2% last week to 53% G/E! This drought is in the Corn Belt, and primarily in ILL, IND, OH, KY, and TN but also impacting IA and MO adversely. This is indeed the heart of the Corn Belt.
We will need to try to liquidate remaining hedges, on a drop back to $5.35 Dec corn and $13.45 Nov. soybeans. These are our targets to lift remaining hedges for now. Wheat producers may not need to do anything, or could use corn or soybeans to reduce hedged positions by buying those markets. Wheat is not being directly affected by the drought.