Crop condition falls, but expect limited downside as summer ends

Market Realist

Why I am negative about nitrogenous fertilizers (Part 1 of 11)

The significance of corn price

Crop condition is an indicator published every week by the United States Department of Agriculture (USDA) during the planting and harvest season. Each week, the NASS (National Agricultural Statistics Service) sends a questionnaire to about 4,000 people who are somewhat representative of every county. It then compiles the returned answers and releases them to the public at the end of every Monday, reflecting the prior week’s data.

Conditions fall amid drought-like weather

For September 13, the USDA reported another decline in the percentage of corn crops in “good” and “excellent” condition. Continuously negatively affected by the late drought-like weather, conditions fell from 54% to 53%. As corn uses the bulk of fertilizers in the United States, and it’s used in many foods we consume today, it’s the most important crop to follow. The indicator is useful in estimating the yield that farmers will be able to harvest this year. Solid percentages often point to strong crop production, which tends to alleviate pressure on the global stock-to-use ratio—another key indicator agriculture investors, analysts, and traders watch. On the other hand, low percentages often point to a weak production year, which can push corn prices up and increase demand for fertilizers in the following year.

But the fall is unlikely to affect corn prices

Favorable warm and wet weather as well as strong potash application helped push conditions to above the seven-year average earlier this year. While the condition indicator has fallen due to the late heat wave, we’re lucky we haven’t had a severe drought like last year, which sent the indicator from 60% to just above 20%. Even though the late heat drove crop conditions lower, it’s helping corn grow. The wetter-than-normal summer earlier this year had slowed crop growth, but more crops are now maturing as they benefit from some sunshine, which is causing corn prices to drop slightly. As the days of hot weather are now mostly behind us, crop conditions are unlikely to suffer much. So corn prices are unlikely to rise much further from here.

Continue to Part 2

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