Ukraine’s Corn Export Potential Drops:
Crops across Ukraine’s key corn growing areas—central and northern oblasts—entered June in generally poor vegetative health. Although rainfall picked up across central Ukraine during the second half of June, cumulative seasonal rainfall is still 50% below average in many areas. What’s more, rising temperatures are likely resulting in increased evapotranspiration rates offsetting higher precipitation for crops. As such, we see a solid chance that the USDA will cut its forecast of Ukraine’s corn production on Wednesday. Given that Ukraine is projected to account for roughly 14% of global corn exports in 2017-18, we encourage traders and procurement groups to keep a close eye on Ukraine’s climate conditions in Gro.
US Soybean Yield Potential Is Shrinking:
USDA rarely changes its soybean yield projections prior to the August WASDE report. While 2017 is unlikely to be the exception, we do see an outlier chance of a modest trim to US soybean yields in the July report. The good-to-excellent rating for US soybeans has declined every week since the start of the season. Drought conditions are challenging crop conditions across N. Dakota—a top five state for soybean production. Last week’s rating of 62% suggests an in-season forecast closer to 47.0 bushels per acre (BPA) versus the USDA’s current forecast of 48.0 BPA. Even so, potential reductions to 2016/17 ending stocks are largely embedded into market expectations. All this means that we can’t discount a “sell-the-news” report on Wednesday since soybean futures have already posted strong gains in July.
A Major US Corn Yield Reduction Is Unlikely:
If Gro’s yield forecast proves true, the USDA will ultimately reduce its full-season forecast of US corn yields. However, calling for a cut in July’s report may be premature. On the one hand, vegetative health has recently improved in some corn-producing areas in Illinois and Indiana. Still, dry conditions are predicted for roughly 25% of the US Corn Belt as corn nears the critical pollination stage. This mixed outlook for corn in recent weeks favors a wait-and-see approach for the July report. In fact, 2017-18 US corn production could actually increase, as acres planted may be increased to reflect the USDA’s June Acreage survey. As such, we suspect that corn futures will continue to trade more on July weather forecasts, which are currently pointing to a hotter spell in parts of the Corn Belt.