CME: Declining Corn and Soybean Condition

US - This week’s Crop Progress report from USDA reported changes in corn and soybean condition that were about in line with analysts’ expectations. The percentage of the corn and soybean crops rated in good and excellent condition fell by one and two percentage points to 53 and 50 per cent, respectively, write Steve Meyer and Len Steiner.
calendar icon 17 September 2013
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That small deterioration in soybean condition, however, was overshadowed by weekend rains in many areas from Nebraska through Illinois and the fact that temperature forecasts still have nothing near freezing temperatures in the immediate future. We still believe the soybean complex has been carrying a significant risk premium for an early frost and every day that passes without a cold night appearing on the weather forecast horizon holds the potential to unwind that weather premium. Rain will still do the trick as well, at least for the next couple of weeks.

Soybean progress continues to lag behind normal and last year with 26% of acres reported to be dropping leaves this week. That compares to last year’s very quick 54% and an average of 35% for the past 5 years. USDA has not yet reported any soybean harvest.

The earliest corn progress measures (dough stage and dented) continue to catch us with normal — as they must at some point — but only 22% of corn is now mature compared to last year’s unusually high 73% and a 5-year average of 41%. The week saw significant gains for some important states, though, as Illinois’ and Indiana’s crop moved from 6 and 9% mature, respectively, to 25 and 22% mature.

The gains are good but those two states have averaged 50 and 40% mature as of this week over the past 5 years. Iowa, Ohio, Nebraska, Michigan, Minnesota and Wisconsin are still south of 20% on corn maturity at a time when their 5-year averages are 45, 28, 29, 28, 28 and 21%, respectively.

BOTTOM LINE: Both the soybean and corn crops still need some more time if USDA’s yields are to be realized. The good news is that NOAA’s most recent temperature outlook says the probabilities
are relatively high (40-50%) that temperatures will be above normal for most of the U.S. east of the Rocky Mountains.

One of the most maddening questions we have received since the biofuels era drove corn price higher in 2007 is “Well why don’t farmers just feed their animals something else?” As if there is some huge pile of unused “something else” just laying around in case it is ever needed! Our answer, of course, is that farmers have always fed and will continue to feed all of the “something else” that is available. The problem is that the price of “something else” went right up with corn values! The exception was DDGS, whose price relative to corn actually fell as ethanol production ramped up, bottoming on an annual basis in 2010. But DDGS have become more and more expensive relative to corn since then because they are also a source of protein. Low quality protein (ie. low in amino acids that are essential to pigs and poultry) but protein nonetheless! By using synthetic amino
acids. DDGS has become an important protein source for pigs and, to a lesser degree, poultry. But that means soybean meal has exerted an upward influence on DDGS prices meaning DDGS values have risen, reaching their highest level versus corn since 2006.

Another interesting take from a reader on the low hog numbers of the past few weeks: “I can tell you that August 27th was the worst weather I ever golfed in so I can’t imagine the hogs were
having a good time either!” This producers makes a compelling argument that weather is the primary driver of recently-low hog numbers. We think a reduction in ractopamine use may be playing a role since it may be taking pigs longer to reach market weight and the marginal revenue-marginal cost decision would be tipped toward costs thus causing the non-ractopamine pigs to come to market at lighter weights. But “non-racto” farms still account for the minority of the pigs
so how much of an impact will they have on industry-wide numbers? Today’s estimated FI hog slaughter was 428,000 compared to 417,000 last week and 436,000 one year ago.

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