2012 U.S. drought reminds farmers of 1988
By Moe Agostino
U.S. corn and soybean crop conditions according to the USDA crop progress report as of June 14, fell to 56% and 53% good-to-excellent respectively. This is the third consecutive drop in crop ratings for both crops and corn is down 21% since May 21. Soybean crop ratings are down 12%. Markets were expecting another sharp drop with the USDA progress report on July 2.
In 1988, corn crop conditions fell 26% for the same period while soybean crop ratings were as low as 18%. In 1988, U.S. corn yields dropped 37.1 bushels/acre from 1987 while soybean yields fell 7.1 bushels/acre. In 1988, December corn futures rallied for 28 to 35 days before fizzling out with a high of U.S. $3.70/bushel, up 68%, before expiring lower at U.S. $2.6625/bushel. In 1988, November soybean futures rallied for 72 days before fizzling out with a high of U.S. $10.46/bushel, up a whopping 136%, before expiring lower at U.S. $7.21/bushel.
2012 December corn futures have been slow to realize the damage that extreme dry weather in 2012 has done to the corn acres in the ECB (Eastern Corn Belt). After a record-setting corn planting pace in 2012, the December corn futures traded to a new contract low at U.S. $4.99/bushel only to reverse course and add U.S. $1.39/bushel, up 27.8%, in just 9 trading days from June 15 to June 28.
On Fri. June 29 the markets and traders were awaiting the highly anticipated 2012 USDA June Acreage and Quarterly Grain stocks report. The USDA is expected to report 96.1 million acres were planted to corn vs. the March estimates at 95.9, up 0.2 million acres.
The USDA is famous for increasing total corn acres in the June acreage report 8 out of 10 years. The USDA is also expected to report corn stocks at 3.18 billion bushels, up 49 million bushels from 2011 at 3.67 billion bushels. Corn stocks could come in higher than expected as demand falls due to higher prices. However, both reports will take a back seat to weather as a lower U.S. corn yield of 153 to 157 bushels/acre is what matters.
In June 2012, with no adjustment to demand 2012/13 U.S. corn ending stocks will drop from 1,881 billion bushels to only 929 million bushels, only 78 million more than 2011. Prices will now need to move high to ration demand! For every day that we do not get rain, and the dry forecast does not change, we could drop yields by 1 bushel/acre/day. 20% of the U.S. Midwest is pollinating as we write, 30% the first week of July and the rest by the 2nd week of July. 90+ degree weather with very little rain is not very conducive to higher corn yields.
2012 November soybean futures fell to U.S. $12.45/bushel on June 1, 2012. Prices have rallied U.S. $1.67/bushel or up 13.5% to break resistance at U.S. $14.00/bushel and trade to new contract highs of U.S. $14.396/bushel as demand remains strong.
The 2012 drought is also impacting soybeans planted with average analyst yields dropping from USDA estimates of 43.9 to 41 to 42.5 bushels/acre. In the June 29 2012 USDA June Acreage and Quarterly Grain stocks report, the USDA was expected to report that farmers planted 75.5 million acres to soybeans. This is up 1.6 million acres from the March estimate at 73.9 million acres. The USDA is famous for increasing soybean acres at the June Acreage report only 2 out of 10 years. The USDA was also expected to report June 1 soybean stocks at 640 million bushels. This is up 21 million bushels from 2011 at 619 million bushels. Despite 1.6 potential more acres that were planted and double cropped after an early wheat harvest, some are arguing that total soybean acres will be overstated as many did not get planted or those that did never emerged due to dry weather and a lack of moisture. With 75.5 million acres and an average yield of 41.5, 2012/13 soybean ending stocks will only increase 20 million bushels to 160 million vs. 2011 when 140 million bushels remaining tight.
2012 September wheat futures have followed corn and soybean futures higher as growing concerns due to weather in the U.S., FSU (Former Soviet Union) and Australia have caused managed money to cover their net record short positions in wheat. Wheat futures are up U.S. $1.39/bushel since the middle of May, or up 24%, as it puts in an early seasonal harvest low.
In the June 29 USDA June Acreage and Quarterly Grain stocks report, the USDA was expected to report all wheat acres at 56.7 million acres, up 0.8 million acres from the March estimate at 55.9 million acres. June 1 all wheat stocks were expected at 725 million bushels, down 137 million bushels vs. last year at 862 million bushels.
Moe Agostino is a London-based analyst.