Rural Voice Aug 12, 2020

During the night of August 10th parts of the US Midwest were hit by a severe storm that caused wide spread and extreme damage to many things in the storm’s path.  This large powerful storm knocked out power to over 1 million homes in Iowa and Illinois alone, as the winds that came through blew over trees and toppled power lines along the storm front.  In Iowa winds were recorded as gusting up to 112 miles per hour.  This storm that occurred is classified as a Derecho “deh-REY-cho”.  A Derecho is basically an in-land hurricane which is a long lived, widespread and straight line storm with high winds that come at tornado force.  For a storm to be classified as such, it must have winds that travel at least 58 miles per hour producing a swath of damage that is at least 240 miles long.  The name Derecho is rooted in the Spanish word for straight, which characterizes the behavior of these powerful storms.  These storms are formed as wet humid air from a thunderstorm meets dry air in the atmosphere.  As the wet air meets the dry air the water evaporates and cools, changing the density of the air mass.  This cooled air rapidly becomes dense and quickly falls toward the ground creating strong winds in a single direction.  This down burst of air gains speed and size as it’s movement and force, draws in more dry air as the downburst continues. It is reported that these storms are common in the US Midwest but are still reasonably rare, with typically one per year occurring.  The damage of this storm was severe to agricultural land and facilities in its path.  The day after the storm the Iowa State Secretary of Agriculture stated that tens of millions of bushels of commercial grain storage and millions of bushels of on farm storage were impacted and damaged or faced destruction by the storm.  It was also predicted that around 10 million acres of crop land were potentially impacted as well.  Some of these 10 million acres will still make a crop, however it is very uncertain how much will be harvested and salvageable.  In an attempt to quantify crop losses, analysts have estimated that between 100 to 500 million bushels (2.5 -12.7 million metric tonnes) could have been destroyed.  To put this in perspective in a local context, the entire Ontario crop assuming trend line yields and typical acreage is in the range of about 346 million bushels. 

The US can afford to lose some corn production this year.  Crop ratings through August have been spectacularly good.  Into early August the US crop was rated 9% better than the 10 year average.  Such high ratings indicate an extremely high yielding crop potential.  The average guess for US corn yield is about 180.5 bushels per acre, up 2 bushels per acre from the July estimate.  If this yield is realized the US ending stocks would be the highest since 1987/88.  Fortunately exports have been good and China is on a buying spree.  Chinese corn prices are the highest they have been in years and importers are aggressive buyers of US product.  Some expect China to buy up to 15 million tons of US corn, as they attempt to meet their commitment for US purchases under the Phase 1 agreement.  There continues to be a high level of political uncertainty over hanging the market however, with political jangling going back and forth between the powers that be.  The large speculative funds have a big short position in the corn pit.  While their position is substantial it is not record short.  With this being the case it is difficult to envision prices pushing significantly lower, and if more surprises hit the market we could see the funds buy back these positions causing a market bounce. 

The soybean crop expectation is even better than that of corn.  Weather has been ideal recently for soybean development through August, and the bean crop is made in August.  Yield expectations are huge and from this thoughts are that the US ending stocks could swell to extreme levels.  Fortunately Chinese demand for soys is also large.  China imported just over 10 million tonnes in July alone and year to date about 55 million tonnes of soy, 18% more than last years purchases. 

Ontario wheat harvest has been wrapped up and overall the crop seems to have been about an average yielding crop generally.  As far as quality goes, for the most part the crop is milling quality, with high falling #’s and good protein and test weights.  Ontario wheat has been exporting to Latin America and Mexico through harvest, as well as to the US at a pretty good clip.  Wheat prices have faded through harvest and have been pushing substantially lower into mid August, compared to the prices that were available in the spring.  The main reason for the price decline has come from production news out of Russia, where yield estimates grew as harvest began.  Russia continues to dominate the export front, selling wheat cheaper than any other region of the world. 

 





 

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