Drought is expanding, and amid current forecasts calling for near complete dryness across a bulk of the Plains, ARC looks for condition ratings to fall, not rise, in the next two weeks. However, even simply accounting for plunging crop conditions across the Northern and Western Plains, substantial US yield adjustments lie in the offing. ARC notes that not that long ago the Dakotas were considered as being fringe producing states; now they account for some 10% of US corn area. Kansas, too, has seeded a record 5.3 Mil Acres in 2017. Based on weather to date, ARC’s work projects combined yield in NE, SD and ND to exist 12-13% below trend, which along with slightly higher abandonment results in combined production of 2,487 Mil Bu, the lowest since 2012. Note that assuming normal abandonment and trend yield, combined NE, SD, ND production would reach 2,893 Mil – a 406 Mil Bu difference, even assuming trend yield in all other states.
These states have also combined to plant a record 18.3 Mil Acres of soybeans, or some 20% of the US total. This is not too far behind IA & IL, which combined to seed 20.4 Mil Acres in 2017. The result of our weather-based model is similar and suggests combined yield in NE, SD and ND will be 12% below trend, with the possibility that this discrepancy rises to 15-20%. As such, production there is pegged at 694 Mil. Using trend yield, production there would be 799 Mil Bu, and so, like corn, already national soybean yield is in jeopardy of falling 1.0-1.5 Bu/Acre, even assuming trend yield elsewhere.
The point is that, while weather has not been a disaster nationwide, the market seems to be underestimating the recent growth in row crop production across the Plains – and the consequence for US balance sheets.
Adjusted US corn & soybean balance sheets are at left, and the numbers only account for Plains production shortfalls. Residual use will of course be revised downwards as supply declines, but it’s still rather easy for balance sheets to change substantially.
Assuming the aforementioned production changes in NE, SD and ND, US corn yield is pegged at 166.8 Bu/Acre, with end stocks falling to sub-2.0 Bil Bu. Changes to the soybean balance sheet are more noticeable, and assuming a yield of 47.1 Bu/Acre, our work indicates new crop end stocks fall below 400 Mil Bu. Longer term, this will support Dec corn at/above $3.60, and will offer strong support to Nov beans above $9.00 at harvest. ARC’s thesis is that to be overly bearish, South America needs to obtain yields at or above trend next winter. And the Dakotas surely will shift acreage to spring wheat next year. Could a minor battle for acreage be brewing with respect to 18/19 seedings across the Plains?
