844-4Ag-Mrkt
07/25/19
Nearby corn futures continued to trade in the sideways range as the market digests the supply against demand. USDA will be updating acreage in the Aug report but yield remains questionable as to what USDA will say as crops remain very far find. It will even be near impossible for USDA to assess yield for the September report as fields are so far behind, that many ears will just be getting “set” when surveyers are out in the field. USDA already has a credibility problem this year, and conditions will make it even more difficult to regain industry confidence. The AgMarket.Net aerial study was the first pivate study of the 2019 season. Now, the 2019 Profarmer Crop Tour will probably be the most watched event of the year.
The market seems very reluctant to grasp the severity of the 2019 situation. Our aerial studies suggest the problems are much bigger than what the market is trading. This report is intended to give you a visual look at current crop conditions. Looking at the percent behind that the USDA just reported in this weeks crop conditions, corn is at a record slow pace and yet traders seem to think current weather is solving the problems in the field. The problem is that you cannot “fix” a hole. And although many crops have caught up with recent heat units, many are just too far behind. This report will give you actual photos of fields so that you can see population and stands, color or vegetative health. These are issues that cannot be fully repaired.
The following are random pictures between central Ohio and SW Iowa. These pictures were then matched up with historical pictures found on Google Earth to show you progress in a more normal year at approximately the same week
The first observation that cannot be denied is the fact that in this year you see a lot of dirt compared to normal. This means crops have just emerged, are very short in size or population and stand is lacking. The second observation to make is that there are holes in many fields or areas that the crop is massively stunted or just missing. Compared to normal where we should be fully filled in the row by this time, it is a dramatic comparison. We admitted it is difficult to assess yield based on these comparisons. However, all the studies that we have read, the conversations we have had with agronomist, and formulas that we have seen from universities all suggests that this is significant and the geographic scope of these issues exist from Ohio all the way to western Iowa. This is the largest geographic area ever recorded with issues this significant and thus the scope of the situation seems nearly impossible to grasp.
The farm that is probably the closest to normal would be the last set of pictures we provided. Taking a different latitude across the country most likely would provide better results. We would guess that a swath farther north would be better. However, south would be worse as we know that northern Missouri and east into southern Indiana is extremely bad.
Based on our aerial study https://www.agmarket.net/corn-project-2019/ We concluded that harvested acres would fall to 79.6 ma. We suspect that this is conservative in that we backed out some of the observed un-harvestable acreage numbers as we did not want to double count those as PP acres. We assumed that most farmers would go back in and seed those un-harvestable acres so they can collect PP payment. If we are in error at all it would be that our acreage number is still too high. We also concluded that yield would fall to 156 bushel per acre. We believe that this is only attainable with excellent weather through the balance of the year. We are currently doing a survey of farmers using the U of I crop maturity GDU Calculator https://mrcc.illinois.edu/U2U/gdd/ to determine what percent of farmers may be vulnerable to not reaching black layer by early Frost. So far we’re finding that the worst crops are located in central Indiana and Ohio are far enough south that frost should not be that big of an issue. The bigger concern is growing conditions and yield potential in a crop that is still only to knee to chest high as of this week. One other observation that should be noted, is that our yield estimate of 156 was based on plant populations that we were able to count in our aerial study. This would assume that every plant has the possibility of producing an 18 by 38 ear. With ideal conditions that is still a stretch. With adverse conditions, our yield could still be too high. The last time the United States had a major flood was 1993, and in that year, yields fell to the equivalent of 148 using today’s trend line yields. We believe with today’s genetics, that is highly unlikely. However, If that were the case , 2019 would go down in the books as catastrophic.
The above supply and demand table suggests that we will produce a crop of 12.4 billion bushels as compared to our demand which should be at 14.3 billion bushels. This approximately 2 billion bushel drawdown will eliminate the carry in from last year. In order to maintain a one billion bushel pipeline required carryover , we will need to ration a minimum of 571 million bushels. We believe that the market is already rationed approximately 250 million bushels at the current price. Therefore, either competing world or substituting commodity prices need to go down or, US corn prices need to go up. As mentioned, we believe our yield it is only attainable with good weather. If adverse weather were to occur, it would be easy to further reduce our yield estimate. Cooler temps will rob GDD’s and not allow delayed crops to catch up. Hot and dry weather during fill time would cut weight and fill, and an early Frost would simply be disastrous.
Obviously, no one knows what the weather will do. And it seems that many times Mother Nature will do whatever it needs to save the day… and crops will turn out OK. However if any of the above scenarios become part of a forecast that is confirming, we believe our numbers would have to be adjusted.
The above situation has created a marketing dilemma for both end user and farmer/supplier. Selling what you do not have or may not have can put you into financial peril. For the end user the above situation is highly risky In that price appreciation could be dramatic if there are further growing complications, and acquiring delivery of physical product that has good quality could also be a huge challenge in the fall of 2019. AgMarket.Net works with famers and are suggesting many options plans to manage those risks while JSA Corporate works with End Users and are helping to them manage risk using spreads, analyze transportation and supply alternative strategies as well.
The market should continue to be very sensitive to weather and new private information. The USDA report on Aug 12 will no doubt be closely monitored, but more importantly will be the ProFarmer Crop tour with eyes and feet in the field.
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