Evening Report (VIP) -- August 27, 2013

August 27, 2013 10:19 AM

CONSULTANT LOWERS CORN AND SOYBEAN CROP PEGS... Crop consultant Dr. Michael Cordonnier has trimmed his corn and soybean yields estimates from last week due to deteriorating weather conditions. He has trimmed the corn yield peg by 2 bu. per acre to 152 bu. and the soybean yield by 1 bu. per acre to 41 bushels.

While noting a small portion of the Corn Belt received some beneficial rains last week, Dr. Cordonnier says some of the hottest temps of the season currently moving across the Belt are stressing crops and causing him to have a downward bias towards the crops. "The current conditions will be more important for that segment in the western Corn Belt that was planted much later than normal," he adds. "The yield potential of that corn by and large is still being determined and if these hot and dry conditions persist, there could be significant reduction in the yield of the latest planted corn."

Importantly, Dr. Cordonnier says the soybean crop is still determining much of its yield potential. "There are still a lot of flat pods, which means that the number of soybeans per pod is yet to be determined and the size of the soybeans is undetermined. In the most adverse areas, the number of seeds per pod will be lower than normal and the seed size will be smaller than normal as well," he says.


NWS EARLY SEPT. FORECAST CALLS FOR WARMTH/DRYNESS... The National Weather Service forecast for September 2-6 calls for above-normal temps across the Corn Belt, but for a return to below-normal precip from Iowa eastward. This is a switch from yesterday's 6- to 10-day outlook that called for above-normal precip across much of the Corn Belt. Click here for the latest maps.


U.S. 2013 NET CASH FARM INCOME FORECAST DOWN 10% FROM 2012... Net cash income -- which measures the difference between cash expenses and the combination of commodities sold during the calendar year plus other sources of farm income -- is forecast at $120.8 billion, down just over 10% from 2012 while net farm income is forecast at $120.6 billion, up 6% from 2012, according to updated forecasts for U.S. farm income from USDA’s Economic Research Service (ERS). After adjusting for inflation, 2013’s net farm income is expected to be the second highest since 1973, and behind only 2011. A return to trend yields would lead to record crop production levels and result in substantial year-end crop inventories.

Net cash farm income for 2013, when adjusted for inflation, would be the fourth time net cash income has exceeded $100 billion since 1973. Unlike net farm income, net cash income does not account for capital consumption, change in inventories, and nonmoney income. Substantial year-end crop inventories buoying the 2013 net farm income forecast are not reflected in net cash income.

Despite the 2012 drought, the farm sector remains in solid financial condition with readings on farm debt at their lowest level on record. As USDA correctly notes, that means the farm sector remains in very good shape to make it through any shifts due to commodity prices and macroeconomic factors and shifts in US and global demand. However, the continued rise in expenses at some point could become a point of concern. Get more details and charts regarding the outlook for the farm sector.


FAPRI-MU: LOWER CORN ACRES IN 2014 DUE TO LOWER PRICES... The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri today released its August 2013 Baseline Update for U.S. Agricultural Markets, which provides an update on FAPRI-MU's long-term baseline, based on information available mid-August. The update uses 2013 acreage yield and production estimates from USDA's August Crop Production Report, but the group notes that final outcomes will likely differ (perhaps significantly) due to variables such as weather.

The baseline also assumes a continuation of current ag and biofuel policies, including an extension of the 2008 farm bill commodity provisions. In the case of the Renewable Fuels Standard, the baseline assumes EPA "uses some of the discretion it has to reduce mandates when cellulosic biofuel production falls short of targeted levels." FAPRI-MU bases its macro-economic assumptions on the July 2013 forecast by IHS Global insight, which calls for faster U.S. and global economic growth in 2014 and 2015, moderate inflation to 2015. Based on these assumptions, FAPRI highlights the following baseline results:

  • Prices for grains and oilseeds fall sharply from the drought -- induced peaks of the 2012-13 marketing year. Increased domestic and global supplies are the main cause.
  • Corn prices average $4.65 per bushel for the crop harvested in 2013. Once stocks rebuild, prices could be even lower in subsequent years.
  • Soybean prices average $11.33 per bushel for this year’s crop and could also decline further in 2014. For all crops, actual prices will be very sensitive to changing production estimates.
  • Lower prices are likely to result in less corn acreage in 2014. The area devoted to soybeans, wheat, cotton and rice may increase slightly, while the total area planted to 13 major crops is projected to decline by about 1%.
  • Ethanol production increases in 2014, but the size of the increase will be sensitive to EPA decisions about how to implement the Renewable Fuel Standard (RFS). Prices for the Renewable Identification Numbers (RINs) used to monitor RFS compliance will remain high if mandates are set at levels that require more biofuel use than is possible in 10% ethanol blends.
  • Lower feed prices will reduce livestock and poultry production expenses, resulting in greater profitability and setting the stage for increases in meat production. In the case of the beef sector, however, reduced livestock herds mean beef production will reach a low in 2014.
  • In spite of the 2012 drought, consumer food price inflation remains moderate.

Get more details on these assumptions and highlights.

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