US corn outlook ‘very concerning’ as drought adds to planting woe

US-based analysts have cited another reason for the surprise shortfall in the expected planted area of corn, with some highlighting the impact that drought is likely to have in the production equation, marking a development that could have profound consequences for corn importers and end users.

Corn futures, a yardstick for global price direction and often reflective of domestic US issues, have hit multi-year highs in recent weeks amid strong Chinese buying, mounting expectations around the size of the US export slate this year, and potential for smaller-than-expected planted area next year.

Drought is already a factor in some parts of the key US growing regions, but data is increasingly highlighting that the record yield the USDA is modeling its 2021/22 outlook around is unlikely to be reached unless there is a significant change in the weather, teeing up further volatility ahead.

Drought

“The drought is real,” Diana Klemme, VP of Grain Service Corporation, told Agricensus on Monday, with data from the United States Drought Monitor for April 6 showing states across the west of the country already in a state of extreme or exceptional drought.

Key producing states in the US Midwest and up to the border with Canada are also listed as abnormally dry or in moderate drought across much of their productive regions as well, leading Klemme to question the capacity for US farmers to plant.

“It’s hard to gauge why farmers are doing what they're doing. Iowa/Nebraska corn acres don’t seem to show any pullback. North Dakota acres are down, but South Dakota acres are up,” Klemme notes.

“North Dakota/South Dakota bean acres are mixed so it’s hard to sort out the impact of higher prices versus drought versus recovery from last year’s lost acres due to Prevented Planting,” she said.

While the dryness could spell trouble for soybeans as well, their development hinges more on the pod filling stage of growth, which should fall in August, while corn faces a more immediate threat.

“I am very concerned about summer weather… The western US is in a major drought already. Cold weather is expected for 10 days slowing planting,” Chuck Shelby of Risk Management Commodities said.

“Unless a major pattern change happens later in spring or early summer, US yields will be impacted. Very important considering the USDA is going to most likely project a record yield in the upcoming May report. If I were an end-user of corn I would be very concerned,” Shelby said.

End stocks

The US is facing another hugely significant period for its corn and soybean production after prices raced to some of their highest levels since 2013.

Part of that increase has been fuelled by strong demand and a low-ending stock environment, with first soybeans and now corn recording a scintillating export pace.

Corn is already on course to record its busiest ever year of exports, with the USDA last week increasing its outlook for the marketing year to 68 million mt – although trade sources expect it to surpass 70 million mt and potentially reach as high as 72 million mt.

That is only likely to further tighten ending stocks and drive prices higher in a move that typically encourages farmers to dedicate more area to planting.

But with both corn and soybeans recording high prices, farmers are unlikely to take land away from either staple as their planting efforts get underway, capping the planting outlooks for both crops.

Against that, with the USDA calling for 91.1 million acres to be planted with corn in 2021/22 – well below the 93.1 million acres that analysts had expected – the agency is already relying on a record yield figure to boost production to 15.15 billion bu (385 million mt).

Drought conditions are likely to undercut that yield outlook and make it even harder to plant and produce such a massive crop.

“Water demands for beans are not as big, but drought can affect any crop... We have a lot of market volatility ahead for sure,” Klemme said.