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The drought of 2012 continues, and is so severe at this point that is will go down in history as one of the worst droughts to affect the US corn and soybean crop in history. This is clearly a corn belt drought, too, as the small grains (wheat, barley, oats) as well as the minor crops of the south (cotton, rice, peanuts) are not very much impacted so far. Instead, it's the corn and soybeans that have suffered dramatically since early June, and this has also been a dramatic drought that didn't creek up on us, but instead bolted like a 100 meter sprinter as opposed to a marathon runner!!!
Crop conditions continue to reflect the corn and soybean drought impacts, as the crop condition report out Monday, July 16 continued to show a rapidly declining crop. Corn ratings dropped another large 9% to now only be rated 31% G/E, down from 40% last week and 66% last year. The Pro Ag yield model continues to plummet, losing 5 bu/acre (or 450 mb production) to now be only 138 bu/acre vs. current USDA projections of 146 and 'trend' of 164 bushels. Soybean conditions plummeted to only 34% G/E, down 6% from last week and compared to last year's 56% G/E, with the Pro Ag yield model declining 0.35 bu/acre to 39.7 bu/acre, well below 'trend' yield of 43.8 and also well below USDA's 40.5 bu/acre. That drops production another 25 mb soybeans, and erases about 20% of the current projected carryover. The point is, crops are still declining significantly!!!
Currently, we have technical resistance as the old 2008 highs, and the corn and soybean markets upon expiration of the July contracts at those levels then rallied the August soybeans and Sept. corn (the lead months) to those levels as well. So we quickly this week had a test of the 2008 highs on nearby futures, at which time selling another portion of 2012 crop might be justified. So we are lowering our objectives for additional 25% sales to just below the overnight highs at $7.87 Dec corn and $16.09 Nov. soybeans. Let's continue to add to sales even though the crop is still rapidly deteriorating as these are very good price levels that in the past have severely rationed demand.
We mentioned above that the drought is a corn and soybean drought, now wheat, as the winter wheat is virtually entirely harvested at 80% complete (vs. 65% normally at this time), and HRS wheat harvest is now beginning this week. Crop conditions were little changed last week as HRS wheat country has been getting spotty rains, keeping conditions at 65% G/E, down only 1% from last week, and compared to 73% last year. Barley ratings actually rose to 60% G/E, up from 57% last week and vs. 76% last year. This is clearly not affecting HRS wheat or barley the way it is corn/soybeans!!!
Sorghum weekly crop conditions declined 2% to 30% G/E, not much different than last year's 31% G/E rating so even sorghum is not as severely impacted vs. a normal year. Cotton conditions were 45% G/E vs. 44% last week so we actually gained 1% in cotton ratings. That is up considerably from last year's drought impacted crop, only rated 28% G/E at this time last year. Rice is 70% G/E now, up from 69% last week and much above last year's rating of 60% G/E. Rice is a mostly southern plains/Delta crop, and those areas received rains the past few weeks. So overall, it's the corn and soybeans that are suffering. But of course, these two crops account for about 60% of all planted US acres, so this affects other crop prices (and livestock) as well.
So the corn belt drought continues while the other crops are hardly even impacted. So how high can corn/soybeans go??? We already are into territory where in the past we severely limited demand. For corn, the 2008 highs might be tougher resistance than soybeans, and the damage in just a few weeks may be limited by the maturity of the crop. But soybeans could exceed the 2008 highs as the SAM drought already cut world production severely, and the US and SAM are the two major producers of soybeans. Since soybean demand has been virtually unaffected so far, a continued drought in soybean could still cut production dramatically from the current yield projections. So if soybeans break the $16.50 barrier, it could be surprising how high they could go (is $24 out of the question???). Keep an eye on the soybean market; it could be full of fireworks yet if this drought continues!!!
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