Wednesday, August 8, 2012

Friday is a big day for US AG - USDA WASDE report will provide the first 2012 production forecast for corn and soybeans based on actual crop surveys - expect major volatility when this report is released ! Might Russia ban exports of grains again ? What about the US ( staring at 9 dollar corn by 2013 as corn yields plummet and now soy looking weaker and weaker - might the US also cutback exports in 2013 ?

http://www.ers.usda.gov/newsroom/us-drought-2012-farm-and-food-impacts.aspx


U.S. Drought 2012: Farm and Food Impacts

The most severe and extensive drought in at least 25 years is seriously affecting U.S. agriculture, with impacts on the crop and livestock sectors and with the potential to increase food prices at the retail level. Below is current  information on potential impacts of the drought on key commodities and food prices. We will update the material periodically as information becomes available.

Food Prices and Consumers

With the ongoing drought expected to destroy or damage a portion of the field corn crop in Iowa and other states, an increase in the farm price of corn has already occurred and additional increases will depend on the extent of the drought.  This will in turn, affect the price of other crops, such as soybeans, and other inputs in the food supply such as animal feed. Any effect on retail prices would depend on the severity of the drought and would begin to appear on supermarket shelves in the Fall.
  • We do not yet have specific estimates of how the drought will affect food prices. This will be estimated once we know the severity of the drought and, in turn, how much of the corn crop is destroyed.
  • We will likely see impacts within two months for beef, pork, poultry and dairy (especially fluid milk).  The full effects of the increase in corn prices for packaged and processed foods (cereal, corn flour, etc.) will likely take 10-12 months to move through to retail food prices.
  • The drought has the potential to increase retail prices for beef, pork, poultry, and dairy products first and foremost - later this year and into 2013.  But in the short term, drought conditions may lead to herd culling in response to higher feed costs, and short term increases in meat supply. This could decrease prices for some meat products in the short-term. That trend would reverse after time after product supplies shrink.
  • Historically, if the farm price of corn increases 50 percent, then retail food prices as measured by the Consumer Price Index (CPI) increases by 0.5 to 1 percent. More generally, as an overall commodity price index increases, about 14 to 15 percent of that increase is passed on to retail prices for products that use that commodity as an ingredient.
  • Sweet corn, eaten by humans, is distinct from field corn (used for feed) and is not being heavily affected by adverse weather at this point.

  • Farms

    Half-way through the 2012 crop year almost 80 percent of agricultural land is experiencing  drought, which makes the 2012 drought more extensive than any drought since the 1950's. The August 10 World Agricultural Supply and Demand Estimates (WASDE) Report and ERS's next farm income forecast, to be released August 28, will reflect the initial estimates of the 2012 drought's economic impacts.

    Highlights

    • The drought has rapidly increased in severity over the past month. As of August 1, more than half of U.S. counties had been designated as disaster areas by USDA in 2012, mainly due to drought.
    • 65 percent of farms are located in areas experiencing drought.
    • Based on the 2010 value of production, over 70 percent  of both crop production and livestock production is in areas that are experiencing at least moderate drought.
    • Severe or greater drought is impacting 65 pecent of cattle production, and about 75 percent of corn and soybean production.
    • More than 80 percent of the acres of major field crops planted in the United States are covered by Federal crop insurance, which can help to mitigate yield or revenue losses for covered farms.

    Details

    • As of late July 2012, 65 percent of farms in the United States were experiencing drought.  About 21 percent of farms were in counties where most of the land is under moderate drought; 21 percent of farms were experiencing severe drought; and 23 percent were experiencing extreme or exceptional drought. 
    • A striking aspect of the 2012 drought is how the drought rapidly increased in severity in early July, during a critical time of crop development for corn and other commodities.  The table shows the progression, over the month from mid-June to late July, of severe or greater drought within the agricultural sector. Over the month from mid-June to late July, the share of farms under severe or greater drought increased from 16 percent of all farms to 44 percent.  Total cropland under severe or greater drought increased from 17 percent to 60 percent, while total value of crops exposed increased from 16 to 53 percent.
    • Farm Sector Exposure to Drought, Summer 2012

      Percentage experiencing severe or greater drought
      Percentage of:
      June 19
      July 24
      Farms
      16
      44
      Acres of Cropland
      17
      60
      Value of Crops
      16
      53
      Value of Cattle
      16
      65
      Values are percentage of national total.
      Source: ERS calculations based on 2010 data from the Agricultural Resource Management Survey (ARMS) and county-level U.S. Drought Monitor data reflecting drought status as of July 24, 2012.
      • Exposure to drought varies by commodity. Figure 1 shows the distribution of drought severity for major crops, in value terms. 
      • 36-38 percent of the value of corn and soybean production is in areas with severe drought, while 37-40 percent of the value of production is in areas currently experiencing extreme drought or worse.
      Figure 1: Share of National Value of Crop Production by Drought Severity
      Share of National Value of Crop Production by Drought Severity
      Source: 2010 ARMS; U.S. Drought Monitor (July 24, 2012 drought status). Drought status is designated by the highest level of drought affecting at least 1/3 of a county.
      • Figure 2 shows the distribution of drought severity by livestock type, in value terms.
      • Almost 30 percent of all livestock produced (by value) is in areas with minimal drought, almost 20 percent in areas with moderate drought, and slightly over half is in areas with severe or worse drought.
      • Dairy and poultry farms are the least likely to be in areas affected by drought, while less than 20 percent of cattle production (value) is in areas with minimal drought, although operations throughout the country are indirectly impacted by the drought through inceased feed costs.
      • In contrast, 17 percent of cattle are produced in areas with moderate drought, and 65 percent are produced in areas with at least severe drought.
      Figure 2: Share of National Value of Livestock Production by Drought Severity
      Share of National Value of Livestock Production by Drought Severity
      Source: 2010 ARMS; U.S. Drought Monitor (July 24, 2012 drought status). Drought status is designated by the highest level of drought affecting at least 1/3 of a county.

      Crop Sectors

      Moderate to extreme drought conditions extend across more than half of the contiguous United States, including much of the Midwest from Western Nebraska to Ohio, and Southern Minnesota through Arkansas. Corn and soybeans are widely produced throughout this region, along with significant acres of alfalfa, wheat, pasture and other crops. 
      Conditions for corn and soybeans, as well as other crops, are expected to be critical for supply and price conditions during the 2012/13 marketing year because of relatively tight U.S. and global supply conditions and low stocks as we complete the current marketing year. In early July the corn crop was forecast to be the third largest on record, primarily due to record plantings. However, crop conditions have deteriorated since that time and new estimates will be available in early August. What is clear is that the new marketing year will begin with historically low corn stocks and tight supplies.   
      Corn and soybean prices have advanced rapidly since earlier this summer, and the current season average prices for the 2012 marketing year (September 2012 through August  2013) were forecasted by USDA in the July 11 World Agricultural Supply and Demand Estimates (WASDE) to fall within a range of $5.40 -$6.40 per bushel for corn and $13.00 -$15.00 per bushel for soybeans.  A season average price for corn at the upper-end of the forecasted range would be a record in nominal terms, while season average soybean prices would be at record levels within the entire range of the current forecast. USDA will release new estimates on August 10.

      Corn

      • Most crops produced in the affected region are under varying degrees of stress, but primary concern now is with the corn crop because the unusually hot and dry conditions coincide with the period of pollination and kernel formation, which sharply reduces estimated yields. As of July 24, approximately 89 percent of the corn crop production was in regions impacted by the drought.
      • Hot, dry weather in major corn producing areas resulted in a 20-bushel decline in the July 11 yield  estimates for the 2012-13 crop--from 166 bushes per acre to 146 bushels. Even with that decline, production would have been the third highest on record.  However, since July 11, crop conditions have worsened in much of the Corn Belt.  New estimates of 2012 corn yields and production will be released on August 10. In addition, this season began with historically low corn stocks, portending tight supplies for the major users of corn: livestock producers, ethanol refiners, and overseas markets. Because the corn crop was planted early this year, and record acreage was planted, initial prospects were excellent. Now, diminished production prospects will tighten supplies further, with less potential to increase stocks relative to last season. 
      • For the 2012/13 marketing year, beginning stocks of corn were forecast in the July 11 World Agriculture Supply and Demand Estimates (WASDE) to be historically tight at only 903 million bushels, equal to about 3.5 weeks of supply at current usage rates. Hence, a drought-reduced harvest this fall could make supplies very tight, resulting in higher prices that will ration demand among competing uses. 
      • See ERS Feed Outlook and data on production, use, yield, and prices.

        Soybeans

        • Soybeans also account for a significant amount of acreage in the affected region, and soybean conditions are also declining. However, soybean yields could still recover if timely rains occur prior to when the plants set their pods. Normally, August temperatures and precipitation are critical for soybean yields, but this year's early planting means that late July and early August may be the key period for rains to buoy crop prospects.
        • A lack of rain this early in the growing season is seldom the critical factor for soybean yields, which are more influenced by weather in the late summer during pod development. But even if there is a subsequent improvement in rainfall this summer, current soil moisture is seriously deficient for sustaining crops up to that period. As of July 24, 88 percent of U.S. soybean acreage is in areas classified as being in moderate-to-exceptional drought. The crop's potential could be stunted more than usual this year by the early moisture deficit. 
        • Soybean supplies are already tight ahead of the 2012 harvest.  Ending stocks from last year's harvest are currently estimated at 170 million bushels. For the previous 5 years, ending stocks averaged around 257 million bushels. The result is that prices could rise sharply if evidence suggests that the drought could severely reduce soybean production prospects this year.
        See ERS Oil Crops Outlook and data on production, use, yield, and prices.

        Wheat

        • Wheat is widely produced across much of the drought-ravaged area of the Midwest, but most of the wheat in this region is harvested in the spring and early summer, so it reached maturity before the dry conditions could meaningfully affect yields. 
        • Fall harvested wheat (spring wheat) is produced mainly in Upper Midwest and Northern plains areas that have so far been unaffected by the drought.
        See ERS Wheat Outlook and data on production, use, yields, and prices.

        Cotton

        • While conditions are dry in many cotton producing regions of the United States, they are much improved from the even worse drought conditions experienced last year at this time. As a result, early season U.S. cotton crop conditions are above the corresponding period from last year and similar to the 5-year average.  As of July 29, 44 percent of the U.S. area was rated "good" or "excellent," compared with 30 percent last season, while only 22percent was rated "poor" or "very poor," compared with 40 percent in 2011.
        • See ERS Cotton Outlook and data.

          All Commodities

          • More accurate measures of the impacts of the drought on yields will start with USDA's  August 10 WASDE, which will be the first 2012 production forecasts for corn and soybeans based on actual 2012 crop surveys. Prior to this date, 2012 yield forecasts have been based on older data that were adjusted to reflect weather conditions.

          Livestock Sectors

          Drought-induced prospects for significantly higher feed prices and heat stress on crops, pastures, livestock, and poultry are likely to restrain growth of U.S. cattle and hog breeding herd numbers as well as poultry and milk production.  Following on the heels of last year's drought in the Southern United States, this year's lack of adequate rainfall over more than half of the country has resulted in deteriorating conditions for the corn crop, higher prices for corn and other feed, and reduced availability of pasture.
          Higher feed costs and lack of pasture are reducing prices of feeder cattle, and inducing growers to place cattle on feed lots at lower weights. The impacts of placing cattle on feed sooner is likely to be more beef supply at potentially lower prices in the next 6-9 months, but less beef and higher prices later in 2013 and beyond. 
          • Although feeder cattle prices in June were 14-28 percent higher than year-earlier, increased exports of feeder cattle from Mexico to the United States -- combined with higher U.S. grain and feed prices -- have led to declining U.S. feeder cattle prices. Feedlot operators are paying lower prices for cattle since feed costs are going up and the price of cattle ready for slaughter is declining. As of July 24, approximately 73 percent of cattle areas were affected by moderate or more intense drought.
          • In July, drought-impacted rangeland and pasture conditions have resulted in placements in feedlots of younger and lighter-weight calves at prices as much as 20 percent below March 2012 peak prices. As of July 24, approximately 66 percent of hay areas are currently affected by moderate or more intense drought.
          • Heat stress, higher feed prices, and reduced hog and poultry inventories are combining to reduce the outlook for pork and poultry production from now into 2013.
          • The prospect of much higher feed costs is expected to greatly increase poultry production costs and negatively impact any incentive for broiler and turkey producers to expand. Poultry production estimates starting in fourth-quarter 2012 and going through 2013 have been reduced.
            • Reduced prospects for U.S. corn production in the 2012-13 crop year, with accompanying expectations for significantly higher corn prices, will temper additions to the hog breeding inventory this year and into at least the first half of 2013. 
            • Recent high temperatures will likely restrain milk production over the course of the summer. Coupled with higher feed costs, milk output per cow is expected to be lower and the price farmers receive for their milk slightly higher in 2013 than in 2012, but still well below prices in 2011.
            Further Information:




and......







http://www.dailymail.co.uk/news/article-2184844/Britain-faces-food-price-hikes-fears-grow-drought-hit-Russia-impose-export-ban-grain.html


Britain faces food price hikes as fears grow that drought-hit Russia may impose export ban on grain


  • Russia expected to produce 75m tons this year - 30% less grain than 2011
  • 'Market is very fearful,' said cereals analyst Jack Watts 
  • Drop in yields could push up price of food across the world

PUBLISHED: 06:38 EST, 7 August 2012 | UPDATED: 08:13 EST, 7 August 2012
Britain could be hit by a hike in food prices as large swathes of the world suffer from dry weather.
Farmers in Russia are being crippled by severe drought, which has caused a potentially devastating drop in the country's grain production.
Fears are mounting that the country, which exports the cheapest wheat, will impose an export ban, pushing up the price of food globally.
Russia is forecast to produce 75million tons of grain this year – a 30 per cent drop in the country’s usual yield.
Global wheat prices have already soared this summer after the worst drought in more than half a century hit Midwest America.
More than 60 per cent of the US is under moderate to exceptional drought, with some analysts saying the corn crop could be the smallest in a decade.


Farmers walk in a wheat field, partially ravaged by locusts and drought, near the town of Neftekumsk in Russia
Farmers walk in a wheat field, partially ravaged by locusts and drought, near the town of Neftekumsk in Russia
Employees operate combines to harvest wheat at a field near the village of Konstantinovskoye, Russia, last year as the country hoped to repeat its role as a leading grain exporter thanks to a good harvest


Employees operate combines to harvest wheat at a field near the village of Konstantinovskoye, Russia, last year as the country hoped to repeat its role as a leading grain exporter thanks to a good harvest
Russia last imposed a blanket ban on grain exports two years ago, in a move designed to keep domestic food prices under control.
The hard-line action, which resulted in a rise in bread prices, was prompted by the worst drought for the country in at least 50 years.
Jack Watts, senior analyst at HGCA the Home-Grown Cereals Authority, said: ‘If there is a longer term period of higher prices then this may well end up with higher food prices.’

More...

Speaking to Radio 4’s Farming Today programme today, he said: ‘Two years ago Russia had a blanket export ban in place very quickly.
‘In 2012 the market is very fearful of this happening, there is no confirmation or real denial an export ban is going to happen, but the market is nervous based on a repeat of what we saw in 2010.’
The former Soviet Union is one of the world's biggest producers of wheat, barley and rye.
Mr Watts added: ‘With Russian being the cheapest exporter of wheat into key regions such as North Africa and Middle East, it almost make it a bit of a price setter.
‘So when we come into a season like this when exports are higher likely to be lower than where they were last season-the markets get a little bit nervous and tend to rise.
Workers tend drought-stricken crops at a farm outside Moscow in 1999 when dry, hot weather threatened Russia's harvest


Workers tend drought-stricken crops at a farm outside Moscow in 1999 when dry, hot weather threatened Russia's harvest
‘There is less competition for exports from the likes of the EU and US, so the world is essentially going to be more reliant on US wheat exports in the coming season.’
As the worst drought in more than half a century hit Midwest America, the price of corn surged by 20 per cent in July - the biggest two-month rally since the last major drought in 1988.
Lack of rain in America's breadbasket intensified at an unprecedented rate, driving concern food prices could soar even further if crops in the world's key producer are decimated.
Experts fear the US crisis, coupled with the problems in Russia, could cause further hikes in the price of grain.
Last year, Russia exported 28million tons of grain and the sheer volume of the country’s exports makes it a key player on the market.
But Russia's Volga Valley grain yields have already fallen by 50 per cent after a hot and dry spring.
Farmers in the drought-stricken province were used to shipping grain down the Volga River as far afield as Iran but this year's yields have halved, sending up local prices and prompting farms to hold onto grain in hope of further gains.
With a harvest of 700,000 tonnes this year, the region will be able to cover annual local demand of 300,000 tonnes with much less than usual to spare, Alexandr Chepukhin, agriculture minister of the Ulyanovsk region said.
Corn plants are seen in a drought-stricken farm field near Evansville, Indiana, US


Corn plants are seen in a drought-stricken farm field near Evansville, Indiana, US
Meanwhile in the US, nearly 220 counties in a dozen states have been added to the list of natural disaster areas as cash-strapped farmers and ranchers trying to grapple with the extreme heat and dryness.
The affected counties were designated primary disaster areas in the growing season, the vast majority of them mired in the drought.

RUSSIAN BAN ON EXPORTS 2010

In August 2010 Russia imposed a ban on grain imports after a severe drought and a spate of wildfires devastated crops.
Prime Minister Vladimir Putin said the move was necessary to protect his country’s population against wheat shortages.
The measures were designed to keep domestic food prices under control.
It was prompted by the worst drought in at least 50 years with a heat wave that included the highest temperatures recorded in 130 years.
This hit the grain harvest, with farmers harvesting 39.5m tons of grain - 22pc less than 2009.
Analysts at the time warned a loaf of bread in Britain could rise by as much as 15p as a result.
The US agriculture chief unveiled new help last week for farmers and ranchers  in counties in Arkansas, Georgia, Iowa, Illinois, Indiana, Kansas, Mississippi, Nebraska, Oklahoma, South Dakota, Tennessee and Wyoming.
Last week nearly half of the nation's corn crop was rated poor to very poor, according to the USDA's National Agricultural Statistics Service.
That is the worst rating since the drought of 1988, which cut production by 20 per cent and cost the economy tens of billions of dollars.
About 37 per cent of the US soybeans were lumped into that category, while nearly three-quarters of U.S. cattle acreage were in drought-affected areas.
Yesterday Shenggen Fan, director general of the International Food Policy Research Institute, an agricultural think tank warned drought in the U.S. farm belt may result in higher prices for poor people around the world.
He said the global spike in food prices in 2008 showed how poor crops and tight supplies have a wide impact.
The Agriculture Department was scheduled to make its first estimate of the fall harvest on Friday.
Some private analysts say the corn crop could be the smallest in a decade.


and.......

 http://www.zerohedge.com/news/3rd-worst-soybean-yield-signals-price-susceptible-further-spikes

3rd Worst Soybean Yield Signals Price Susceptible To Further Spikes

Tyler Durden's picture
Submitted by Tyler Durden on 08/07/2012 16:57 -0400




Recent consolidation in Soybean prices may be susceptible to notably higher prices since JPMorgan's new Soybean Crop Condition Index suggests the crop is in much worse condition than average conditions since 1986. They see the 2012 crop faring slightly better than the 1988 crop (thanks to seed technology) but suggest this could be the third-worst crop since 1964 in terms of actual yields relative to trend. Critically, if long-term drier- and hotter-than-average weather occurs (which appears likely from forecasts with soil moisture levels so low as to make even marginal rain practically useless), there is considerable downside risk to the soybean yield forecast (and implicitly upside risk to prices).
Soybean price consolidation...

JPMorgan Soybean Conditions
We introduce our US soybean crop condition index (CCI): We calculate this indicator using the same methodology as our corn CCI using weekly data from the USDA’s crop condition ratings (summing 2*proportion of crop rated excellent, 1*proportion of crop rated good, ?1*proportion of crop rated poor and ?2*proportion of crop rated very poor).

This week’s soybean CCI indicator suggests that the crop is currently in much worse condition than average conditions since 1986. However, we think the 2012 US soybean crop will fare slightly better than the 1988 crop as seed technology has made the crop more resistant to drought and there is potential for improved weather through the end of August. Our yield forecasts suggest that this could be the third-worst crop since 1964 in terms of actual yields relative to trend (Exhibit 2). Keep in mind that soybeans are more resistant to harsh weather than corn—even in 1988, US average corn yields declined by 24% relative to trend, while soybean yields only declined by 17% relative to trend.

Light rain in the forecast for the US Midwest is unlikely enough to reduce soil moisture stress: During this week, some precipitation affected the northern and eastern part of the Corn Belt but temperatures remained about 1°-to-5°C (2-to-9°F) above average. Current weather forecasts suggest that light rain will continue through the next 1-to-2 weeks; however hotter conditions will also persist. Longer-term forecasts suggest that weather for the balance of August will generally feature above-average temperatures and average to below-normal precip in a large portion of the Midwest. In a normal year this forecast would not be particularly detrimental for US soybeans, but because the soil moisture is so low, rounds of light rain will not be helpful for yields. We took short term weather forecasts into account in our latest 2012 US soybean yield estimates. If long term drier- and hotter-than-average weather estimates. If long term drier- and hotter-than-average weather occurs, there is downside risk to our 2012 US average soybean yield forecast.

and......

"Hot, Damn Hot!" - July Is Hottest Month. Ever

Submitted by Tyler Durden on 08/08/2012 - 12:56NOAA
In the immortal words of Robin Williams in Good Morning Vietnam: July was Hot, Damn Hot! In fact, according to NOAA, it was thehottest July and hottest month on recordand there's no short-term indication of this massively dry spell ending anytime soon. What is perhaps even more impressive is that the the last year has been the warmest 12-month period for the contiguous US since records began in 1895!

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