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USDA reports crop condition above 60%, negative for fertilizers

Xun Yao Chen

Essential Fertilizer Trends Weekly (Part 2 of 11)

(Continued from Part 1)

The significance of corn price

Crop condition is an indicator published every week by the USDA (United States Department of Agriculture) during the planting and harvest season. Each week, NASS (the 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.

Crop condition reflects favorable overall weather this year

After about two weeks of government shutdown, the USDA released its crop condition data on October 21. The percent of corn crops in “good and excellent” condition jumped from 55% on September 27 to 60% on October 21, and was last seen at 62% for the week ending October 25.

Earlier during the year, favorable weather across the United States supported crop growth and condition. As late summer drought and heat moved in during August, however, farmers reported lower crop condition. While traders were cautious for a some weeks, experts generally agreed that the drought was more localized. This contrasts with last year, when crop condition fell below 25% due to a record nationwide drought.

As the late summer drought and heat moved away, drops of rain here and there aided some late developments in summer crops by alleviating drought pressure. Some farmers were amazed by the kinds of yields they were receiving towards the end of September. The jump in crop condition in October reflects this development.

Impact on crop prices

Crop condition is one of the key factors that affect the production and supply of corn, which in turn affects corn prices. Solid percentages often point to strong crop supply, 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.

Impact on fertilizer stocks

Higher corn condition is positive for consumers and restaurants, but it could have a negative impact on fertilizer stocks like CF Industries Holdings Inc. (CF), Agrium Inc. (AGU), Potash Corp. (POT), and Mosaic Co. (MOS). As lower crop prices may incentivize farmers to cut back on plantation and fertilizer use, fertilizer sales and prices could be negatively impacted. This also applies to the Market Vector Agribusiness ETF (MOO), since it invests in all four large fertilizers mentioned.

Continue to Part 3

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