The intense heat in August took a toll on crop conditions while pushing maturity ahead of schedule, prompting farmers to prepare for an early harvest season. But as combines hit the fields, a bearish outlook persists as farmers brace for a heap of challenges this autumn.
The latest USDA Crop Progress report highlighted the impacts the excessive heat and drought have had on corn and soy development throughout the Midwest. The percentage of corn acres considered Good and Excellent fell below 2022 in early September and has maintained a loss versus the prior year as conditions further deteriorated. However, as corn was past the pollination, a key development stage, when temperatures really took off, it fared better than soybeans. Hot weather during the pod-setting stage of soybean growth drove conditions down quickly, with the lowest percent of Good and Excellent condition acres in the past four years. Reports from the Pro Farmer 2023 Crop Tour also showcase crop stress in notes of yellow-brown marbled soybean fields across the Midwest with lower yield expectations aligning with the revised forecasts from the USDA.
In September, the USDA forecasted new crop corn production at 15.1 billion bushels, UP 23 million from August, on the expectation that greater harvested area, a surprise that came in the June Acreage report, will offset lower yields. Total US corn use was left unchanged from the prior month, resulting in an outlook for higher supplies and ending stocks. Meanwhile, soybean production was revised DOWN 59 million bushels to 4.1 billion as lower yields offset higher harvested area. However, while this initially appears bullish, the USDA lowered the crush forecast by 10 million bushels and the export forecast by 35 million bushels on greater competition from Brazil and Ukraine on the global market. The aftermath of the report saw both corn and soybean futures sliding lower, with November 2023 soybean futures dropping near $12.90/bushel on Friday, September 22, while December 2023 corn futures dropped to a low of $4.68/bushel on Monday, September 18.
But that is not all! The Midwest drought has also resulted in lower water levels along the Mississippi River, a key transport corridor for grain. Lower water levels reduce the carrying capacity of barges, which increases the number of boats needed to transport the same amount of grain. The American Commercial Barge Line announced on September 25 that due to the current river operating conditions, St. Louis, Illinois, and Mid-Mississippi loading drafts are reduced 15% below normal capacity while transit times are UP 48-72 hours due to reduced navigable space in some areas. Less barge availability has driven southbound spot rates well above the three-year average, according to the latest Grain Transport Report. The Cairo-Memphis spot rate is UP 97% compared to the three-year average, and the St. Louis rate is UP 92% for the week ending September 21. Looking at the rise in rates over the past month, the spot barge rate out of St. Louis was $15.64/MT on August 22, and now it is sitting at $38.34/MT, a +$22.70/MT (+145%) jump!
Given how autumn is shaping up, it is not surprising that US farmer sentiment and outlook are on the decline. Purdue University Ag Economy Barometer, a monthly survey of 400 agriculture producers, posted a reading of 115 in August, DOWN from 123 in July. The Index of Current Conditions and Future Expectations also fell from the prior month, but farmers’ year-ahead outlook (119) held a bit more hope than their current conditions sentiment (108). When asked about their biggest concerns in the next year, 34% of respondents noted higher input costs, 24% said rising interest rates, and 20% said lower crop/livestock prices. In a related question, 60% of producers said they expect interest rates to rise further in the coming year.
The impact of high interest rates has always weighed heavy on producers’ shoulders, and in 2023, interest took the lead as the greatest increase in US farm production expenses compared to 2022, according to the USDA 2023 Farm Sector Income Forecast. Elevated expenses for interest, feed, labor, livestock, seed, pesticides, property taxes, and rent are juxtaposed against lower cash receipts for corn, soy, wheat, cotton, dairy products/milk, poultry, and hogs to bring the 2023 net farm income forecast DOWN $48 billion (-25%) vs. 2022 in inflation-adjusted dollars.
With 2023 rapidly approaching a close, hopes are high that 2024 shapes up to be a bit better. We know it is not an easy job, so from all of us at HighGround, we would like to say THANK YOU to all the ag producers who work tirelessly to put food on our tables each day!