Ahead of tomorrow’s much anticipated World Agricultural Supply and Demand Estimates (WASDE) report from the USDA, two veteran grain market analysts today highlighted how the combined effect of heat and dry conditions in the Midwest will likely cause the agency to significantly reduce its U.S. corn and soybean production estimates for the year.
“The market today is expecting a yield decline around 10 percent which would put the bushels per acre around 147,” said Basse, adding that AgResource expects the USDA to drop its corn yield projection to 149 to 152 bushels per acre, down from last month’s estimate of 166. AgResource’s own projections for corn are between 141 and 144 bushels per acre, and soybeans around 37 to 38 bushels per acre.
Roggensack could see estimates going even lower if the drought continues, calling estimates of 114 to 140 bushels per acre for corn “reasonable yield estimates for right now using historical studies. 36-39.4 would be the range we would use for soybeans.”
Both analysts expressed that if drought conditions continue, they could begin to impact world food supply in the near future.
“If this is truly a drought year, and we start talking about a 20 percent yield decline, that puts the U.S. corn yield at 130-132 bushels an acre,” said Basse. “That is a catastrophe, and we get into this real debate of how we are going to ration demand and who is going to go without.”
“Numbers below 140 (bushels per acre) turn the supply/demand tables into critical numbers,” said Roggensack. “Also, a 140 yield means a 65 million ton loss in global corn production. Global corn ending stocks in the last supply and demand report were only 155 million tons, so the drop in yield from this point turns it into a world food problem.”
Basse said with international demand at its current levels, and food vs. fuel debate continuing, the situation for corn in particular is reaching unprecedented levels.
“It’s the tightest supply I’ve seen in my 32-year career. If weather patterns don’t change in the next 2-3 weeks, the world is really looking at a much changed landscape for food prices and grain prices for producers, livestock feeders and ethanol producers, and all we can do is hope for rain and hope that all of this ends soon.”
Basse and Roggensack also answered a few post-panel questions from those in attendance on the floor today.
Will USDA take a conservative approach in its July estimates?
Basse: “In 1988, the USDA cut yield 28 percent for the July report. I think USDA wants to get out the message that they’re seeing a dramatic decline in production.”
Roggensack: “We were deeper into drought at this time in 1988. About 7-8 percent of corn crop was good to excellent at this point in ’88 in Illinois. Last week, that number was at 19 percent. (USDA) really had the ammo in 1988 to go ahead and lower expectations, and they’ll probably have the ammo in another couple weeks.”
How much rain are we short, and how much would we need to compensate for what we’ve missed?
Basse: “According to NOAA, vast areas of the Midwest need 15 inches or more in the next two weeks. It’s really getting too late to help this corn crop because we’re into pollination. The shortages are so severe, it would have to rain for 2-3 weeks.”
Roggensack: “Even if you get rain, it’s not going to cause much change in the corn yield. But the soybean market, it’s like a weed, and if you were to see a sudden change in the forecast, you could see the soybean crop come back and the conditions improve some.”
Any relief in weather forecasts?
Roggensack: “The 11-15 day models have shown we’re going to get cooler and we’re going to get wetter, and it has not materialized.”