The corn market seems to be pricing in a yield of around 165 to 166 bushels per acre for this season, but it will not take much in the way of dry and hot weather to see yields move significantly lower. There is very little rain in the forecast for the Midwest for the next two weeks, and conditions in the Dakotas look to worsen. We see the average yield being around 162 for now, which would leave ending stocks near 1.595 billion bushels versus 2.325 billion in the July USDA supply/demand report. If drought conditions in the northern plains spread south and east, the crop could have filling problems. The latest 6-10 and 8-14 day forecasts through August 10th have a dry trend in the western belt and in the Plains.
This past week’s Drought Monitor showed the percentage of Nebraska in moderate drought stage or worse increasing from 25% to 42% over the previous week. The percentage of Iowa in a moderate drought stage or worse went from 23% to 35%. South Dakota has reached 80% in moderate drought or worse, while the portion of the state in extreme drought stage has gone from 11% to 15%. North Dakota’s area in moderate stage or worse was 79%, with the portion in extreme drought reaching 45%, up 5% from the previous week. With a dry forecast for these four states over the next ten days, some weather premium could be added over the near term.
In their upcoming supply/demand report on August 10th, the USDA is expected to lower their yield estimate from the July forecast of 170.7 bushels per acre. However, we do not expect them to get too aggressive, as pollination problems would probably not show up until the September report.
With China expanding industrial usage for their old corn stocks and investing in new ethanol plants in an effort to increase renewable fuels usage, their ending stocks are coming down. Their ending stocks are currently estimated at 82 million tonnes for 2017/18, down from 102 million in 2016/17. With US yield estimates hovering around 165 bushels per acre, this scenario would lower world ending stocks to 190 million tonnes from 227.5 million in 2016/17. A 162 bushel-per-acre-yield for the US would push world ending stocks down to 184 million