Crop conditions decline

We are starting to see more interest in the weekly US corn and soybean crop condition reports. While using this data to predict yield is highly unreliable, crop condition does give an idea of overall crop potential. At the present time 81% of the US corn and soybean crops are rated fair or better, and 9% poor to very poor. This is still a low volume of poorly rated crops, but at the start of the reporting period they were half of this total. This gives the indication that average yield estimates of 181 bushels per acre on corn and 52 bushels an acre on soybeans is less likely.

There is also a possibility of smaller harvested acres this year given recent floods in the Midwest. The combination of these two factors has started to give the futures market more support.

Heavy rains have had a negative impact on US production thoughts from Midwest flooding, but South of the border precipitation has been welcomed. This is especially the case in the area surrounding the Panama Canal. Fresh water is needed to navigate the locks in the Panama Canal as sea water will cause rust issues. Rain has replenished the tributaries that supply this water, and as a result, heavier passage is being allowed.

Starting in August, 35 vessels will be allowed to pass through the Panama Canal. Of these, 10 can be the large Neopanamax vessels, and the remaining 25 will be allotted to smaller ships. Passage though the canal has been limited for over a year due to low water, greatly impacting US exports through the Gulf of Mexico.

For the past several months trade has been monitoring the culling in China’s hog herd, and now the same is being seen in the country’s dairy herd. In 2001 the Chinese dairy herd totaled 5.7 million head. By 2023 this had grown to 7.1 million head to become the world’s 3rd largest dairy producer. The issue is that China only produces an average of 2.5 tons of milk per cow per year. By comparison, the average production in the United States is 12 tons per cow per year. Even with this production, China is the United States’ largest dairy trade partner and accounts for 20% of dairy exports.

China is now starting to streamline its dairy herd though, same as it has done with the rest of its agricultural industry. By doing so, culling has taken place in the dairy herd, adding large volumes of beef to the country’s supply. As a result, beef values in China dropped 18.4% from May 2023 to May 2024. When added to a large pork supply and declining consumer demand it brings China’s red meat import forecast into question. It also raises doubt over China’s future feed demand.

Cash hog values in China had started to rebound from depressed values following massive culling to control African Swine Fever but are again slipping lower. Cash hog values in China are off 8% from recent highs as consumer demand is not building as much as hoped. Seasonality’s in China indicate consumer pork demand does slip lower over summer months, but the downturn in consumption is greater than normal this year. This is giving the global market the indication China’s economy continues to struggle.

At the same time, hog weights in China are rising as producers wait for better markets, which is generating an even greater pork supply. This news makes China’s return to pork imports less likely.

A story that is developing in the market that is worth monitoring is the increase in Chinese commodity import interest in recent weeks. China has been a more active buyer of US commodities recently, and some analysts feel this is in preparation of the possibility of a re-election of President Trump and how it may lead to an escalation in trade war tactics. While this demand is welcomed, Chinese demand remains at the lowest level in several years, not just on US offers, but on most commodities.

Feed grain demand is starting to become more of a topic in balance sheet projections. At the present time the USDA is predicting 5.75 billion bu of corn and 100 million bu of wheat will be fed in the United States during the 2024/25 marketing year. Pasture conditions across the major beef production states are much better than last year though, and the overall US pasture rating is 49% Good/Excellent. These better pasture conditions are keeping cattle on grass longer, and this may start to trim some feed use forecasts.

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is collected from a variety of sources and is believed to be reliable but is not guaranteed to be accurate. This report is provided for informational purposes only and is not furnished for the purpose of, nor is it intended to be relied upon for specific trading in commodities herein named.