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CME: Drought Conditions Not Easing

10 December 2012

US - It does not appear that drought conditions are easing on a national basis — just changing locations, write Steve Meyer and Len Steiner.

The Drought Monitor maps below conditions on August 21 (top chart) and on 4 December. The 21 August map indicated that 77 per cent of the contiguous United States was suffering drought conditions to some degree and that conditions were severe or worse in 44 per cent of the country. Those numbers for December 4 are 76 per cent and 42 per cent — not much improvement at all. The 21 August map was released just days before Hurricane Isaac made landfall on the Gulf Coast and eventually brought rain to the Mississippi and Ohio River valleys. That moisture plus the rain that moved into the eastern US from Superstorm Sandy has certainly improved conditions east of the Mississippi but conditions have worsened markedly in the plains with drought conditions spreading in Kansas and, especially Nebraska and moving north as far as southern North Dakota. The hard red winter wheat areas of Kansas, Oklahoma and northern Texas remain very dry.



A story by Reuters on Thursday warned that as much as 25 per cent of the winter wheat crop could be abandoned though those decisions will not be made until spring. USDA’s final Crop Condition report on November 26 rated only 33 per cent of winter wheat acres as being in good or excellent condition while rating 26 per cent as poor or very poor (PVP). Those figures compare to 52 per cent and 13 per cent, respectively, one year ago. Most notable, though, is that PVP ratings cover 40 per cent of Texas wheat, 44 per cent of Oklahoma wheat, 46 per cent of Nebraska wheat and 64 per cent of South Dakota wheat. Kansas, the state that produces the largest hard red winter crop, has 25 per cent of its acres rated as PVP.

The 4 December drought also has obvious implications for the US beef sector. Not only is wheat pasture short but grass conditions have deteriorated significantly from northern Texas all the way to North Dakota. As of 26 October, the date of USDA’s final pasture condition ratings for the year, 70 per cent of the beef cow herd is in states with 40 per cent or more of pasture acres rated as in poor or very poor condition. And that’s not all — the availability of stock water, whether from ponds or wells, is becoming critical in many, many areas.

USDA will release its latest estimates of US and world crops on Tuesday, 11 December. This will be the Feds’ last shot at these US numbers before the final estimates for the 2012 crop are released in January. As can be seen below, analysts surveyed by Bloomberg expect, on average, that USDA will increase corn carryout slightly to 659 million bushels, reduce soybean meal by 10 million bushels or, more dramatically, 7.4 per cent and leave wheat stocks pretty much unchanged.

ANALYSTS' ESTIMATES - 2013 YEAR-END STOCKS
11 December 2012 Crop Production/WASDE Reports
  Units USDA '12 USDA November Analysts' Estimates, December*
Low High Average
Corn Bil. Bu. 0.988 0.647 0.493 0.752 0.659
Soybeans Bil. Bu. 0.169 0.140 0.063 0.145 0.130
Wheat Bil. Bu. 0.743 0.704 0.612 0.754 0.706
*Source: Bloomberg

Most eyes are, of course, now on the development of South American crops. What once was primarily a soybean concern has now expanded to cover corn with the marked increase in 2012-13 US corn imports to 100 million bushels. The previous record was last year’s 29 million bushels Analysts expect USDA to reduce its estimates of all four key crops slightly in next week’s report. Still, should these be the numbers, Argentina’s 2013 corn and bean crops will be 33 and 34 per cent larger than last year, respectively. Brazil’s corn crop is expected to be only 4.3 per cent larger than last year but its bean crop is expected to be 21.8 per cent larger. The 80.84 MMT would mean a bean crop of 2.970 bil. bushels, just fractionally smaller than the current 2.971 bil. bushel estimate of the 2012 US crop.

ANALYSTS' ESTIMATES - 2013 SOUTH AMERICAN CROPS
11 December 2012 Crop Production/WASDE Reports
    Units USDA '12 USDA November Analysts' Estimates, December*
Low High Average
Argentina Corn MMT 21.00 28.00 24.00 28.00 26.07
Soybeans MMT 41.00 55.00 52.50 56.50 54.53
Brazil Corn MMT 70.00 73.00 69.00 73.50 70.23
Soybeans MMT 66.50 81.00 78.80 82.00 80.84
*Source: Bloomberg


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