Morning Comments August 23, 2022

Grain Corn Pile Closeup

Though the markets started the Sunday night trade lower on better than expected rains over the weekend, buyers returned in a big way on talk of China’s drought impacting production and observations from the Pro Farmer Crop Tour. At the end of the day, we saw December wheat finish 17 higher, November beans 31 higher and December corn up 6. 

The Pro Farmer Crop Tour kicked off in Sioux Falls, South Dakota yesterday with tour participants set to travel across some of the worst parts of Southeastern South Dakota and Northeastern Nebraska on day one. With the bulk of participants traveling through areas classified as experiencing a long term, extreme drought in the weekly monitor poor crop conditions were expected. The lack of rainfall and heat throughout the summer was evident with reports of plants without ears—though participants admitted finds like that were the exception, not the norm. 

Eastern leg participants traveled throughout west-central Ohio into east-central Indiana yesterday, with many tour attendees noting surprising variability in the crop due to later plantings in the area and hit and miss rain throughout much of June into July.

After the close Pro Farmer updated their 2022 yield estimates for South Dakota and Ohio. South Dakota corn yields were pegged at 118.45, well below last year’s 151 bpa estimate and the 3-year average of 161.6. Ohio yields came in lower than last year as well, with the tour estimating the state will yield around 174 bpa, down from 185 projected last year and 169 as the 3 year average.

The tour does not release state by state bean yield estimates, but instead counts and tracks the number of pods in an area. Pod counts in Ohio were above average, with South Dakota counts below average as rains continue to miss the regions traveled in the west.

Crop conditions released yesterday showed a surprising drop to national conditions as well, with corn coming in at 55% good to excellent, below the 57% expected and 5% below last year’s condition ratings on the week. As we’ve discussed previously, crop condition ratings have been a poor indicator of yields in the past, but the drop combined with tour findings will likely catch the attention of speculators who may have recently left the market.

Concern over what is happening in China when it comes to crop production continues to grow as much of the country has been gripped by a two-week heat wave that has broken records in some regions. Rain and cooler temperatures are expected to arrive over the weekend, though some wonder if it will be too little too late. Officials say damage has been done to autumn crops, though they claim yield losses will remain minimal.

We continue to monitor developments when it comes to Chinese corn purchases on the back of drought reports. Last year at this time Chinese purchasers had nearly 16 mmt of new crop corn purchases on the books between Ukraine and the US, this year they have just under 3 mmt of ownership. Some attribute the slower buying pace to purchasers waiting for Brazilian supplies to become available, while others wonder how much Chinese corn demand we will see in the year ahead.

Looking ahead, the crop tour will move through parts of Indiana today on its eastern leg, while western participants will move through much of Eastern Nebraska. The area being traveled today has been hot and dry in the west but has seen more precipitation than its neighbors to the north. 

Eastern participants are expecting relatively decent conditions throughout Indiana but may see some drops in yield estimates after a dry June in the area. Pro Farmer will issue state yield projections for Indiana and Nebraska this evening.

Markets are stronger this morning on ideas of potential crop losses, with support from a higher energy complex. Natural gas traded above $10 overnight, hitting its highest level since 2008.

Selling opportunities in markets like this tend to be hidden by a sudden shift in sentiment as everyone quickly moves from bearish to bullish and groupthink takes hold. If you are in a situation where you know you have bushels that need to be moved at harvest or are behind in sales, use these big moves in price to set target orders and get yourself caught up at levels well above crop insurance values.

Corn up 13 to 18

Beans up 7 to 11