Author

Kevin McNew

Kevin McNew

Kevin is a former Professor of Economics at the University of Maryland and Montana State University focusing on commodity markets. As an analyst, Kevin's unique commentary on cash markets can be seen weekly on Bloomberg, Dow Jones, Reuters and other publications.


Jun 24, 2022

by Kevin McNew

After a steady climb over the past six months from $5.50 to $7.50 a bushel for the bellwether December 2022 futures contract, the past three weeks have seen relative choppy trade keeping prices hovering around the low $7 mark.  USDA’s acreage report at the end of June along with US growing season weather will be key drivers for deciding if futures can reach new highs heading into harvest. Likewise, basis levels for fall delivery will be adjusting as we get closer to harvest and estimates of new supplies start to dial in. Current cash forward contracts which quote new-crop basis for delivery this fall have been generally trending higher in the Western Cornbelt but flat to a bit lower in the Eastern Cornbelt. Last year had big corn crops, especially in Ohio and Indiana, which has kept spot basis levels in those states below normal for much of the past six months. Meanwhile in the West, dryness in the Plains and lack of grain supplies has underpinned spot basis for much of the year.  Is this a good time to be locking in the new-crop basis for delivery at harvest? Or would you be better off waiting for new-crop basis to improve? To answer that, we examined 2006-2021 basis bids at harvest for key states and developed our Basis Model to help guide marketing decisions. This model is tuned into a number of factors like US and local production, stocks, ethanol, and exports and gives a basis forecast based on the expected supply and demand situation for this fall.  The results of the forecasts are presented in the chart below for 15 key states. In addition, we illustrate the current year new-crop basis averaged across buyers to compare whether current basis offerings are above or below expected basis levels at harvest. Of the 15 states, only 2 states (KY and MO) show current new-crop basis quotes that are at or below the forecast value for the state. Most states have forecast basis that not only is higher than current quoted basis for that state, but that also is above the long-run average basis at harvest. The key drivers of this are declining US carryout expected for 2022 as well as fairly sizable changes in local production due to acreage changes between 2021 and what is expected in 2022. If USDA were to find even lower acreage in the June survey, and/or if yield potential erodes over the season, then this could add more basis upside this fall. Falling production combined with near-record exports and ethanol production expected in 2022 likely keeps local basis supported heading into harvest, and yet another market where farmers are better off waiting to price on.  New-crop corn basis forecasts Click here to enlarge the image. What it means for the farmer A tightening US and global corn market is unlikely to get corrected in the next six months. Most end users are not eager to bid up basis for this fall, but as the growing season progresses we expect the corn crop size to continue to be downgraded, which likely opens doors for better basis opportunities closer to harvest than what exists today.


May 23, 2022

by Kevin McNew

On May 18th, UN Secretary General António Guterres warned of a looming global food shortage that could last for years ( ). As wheat prices skyrocket, brought on in part by the war in Eastern Europe, the recent UN alarm highlights the growing humanitarian and geopolitical threats that pointed out in the days following the war’s outbreak nearly two months ago ( ). Unfortunately, there is no near-term solution to curb runaway food inflation. While US farmers will begin harvesting winter wheat in the coming months, a recent report by USDA shows little optimism for a bumper crop to cushion global shortages. According to that report, USDA expects the 2022 US winter wheat crop to be 8% lower than 2021 and, if realized, this year’s constrained harvest would be the third smallest crop in the past 20 years.   Over the past 9 months, the La Niña weather phenomenon has been like a tactical missile intent on wreaking the most damage to key winter wheat areas. Heading into planting last Fall, conditions were unusually dry across stretching from Texas up to the Central Plains and west towards the Rocky Mountain front range, the breadbasket of the US which accounts for one half of all winter wheat supplies. As winter gave way to spring and farmers looked to the skies for crop saving moisture, Mother Nature proved unyielding and La Niña’s persistence brought ever worsening drought conditions. U.S. Southwest Plains drought monitor Sizing up a potential disaster USDA’s May 12th survey showed lower than expected production, but that may only be the start of what could be further downgrades to an already diminished crop. This week, the Wheat Quality Council conducted its annual fact finding expedition sending 80 scouts across Kansas and parts of nearby states to collect their own assessments. was part of this excursion (see results for , , and Day 3) and found little reason to second guess the lower benchmark of USDA.  conducted its own poll simultaneously this week, querying our farmers across these 5 states about their yield expectations. The results of that poll are illustrated below in the map and tables. Farmer yield expectations conform closely to the USDA assessment, but in some cases could prove to be worse than what USDA found in the early May survey. Of the 5 states, farmers expected lower yields in 4 states versus what was found by USDA. Also, there were fairly high claims of total crop losses from farmers, which was also found by Wheat Tour Scouts, suggesting that more than normal acres could be abandoned.  wheat yield shows big downgrade What it means for the farmer We expect the yield and production potential for HRW wheat to be downgraded as we get into harvest. Better moisture in the Northern Plains and into Montana could help limit some of the downgrade from the southern reaches. But it will do little to stem the trend of dwindling HRW stocks in the US.


May 10, 2022

by Kevin McNew

It has not been a good growing season for wheat farmers in Kansas, Oklahoma and Texas. Even in the fall when wheat was seeded, conditions were not particularly good and in many regions it has gotten much worse over the past six months. Case in point, Stevens County, Kansas in the southwest part of the state. At planting time in the fall about 24% of the county was in a moderate drought, the lowest classification by the UNL’s Drought Monitor. But today, the drought reading stands at 70% of the county classified as being in exceptional drought, which is the most severe drought rating.  Although some moisture has occurred in dry areas of the Southern Plains over the past week, it may be too little and too late to salvage the crop for some producers.  So far no official government estimates have been made, with the first winter wheat yield survey-based estimate coming from USDA on May 12th. Here, we present estimates for the biggest and most drought-impacted states of Kansas, Oklahoma and Texas to try and assess the potential for yield there. These three states combined account for about one third of all US wheat production, and so losses there can be meaningful for the overall US wheat picture. The model we use is based on several key metrics, covering the past 31 growing seasons: county average soil moisture readings, daily county weather data (i.e. temperature and precipitation) and state level crop condition ratings.   The forecasted yields for each state show significant downgrades from last year’s tallies. Kansas is expected to see the biggest drawdown, with state average yields expected to be slashed by nearly 9 bushels an acre. In total, the expected losses for these 3 states would be about nearly 90 million bushels of lower production this year compared to last year. On an entire US wheat crop that would be around 1,900 MB at trend line US yields of 49.5, this magnitude of loss from these 3 key states would be hard to overcome as it accounts for roughly a 5% loss just from these states. Certainly, some regions will likely fare better and help buffer the steep losses in the Southern Plains, but the market will likely have to focus on an exceptionally tight HRW wheat balance sheet after multiple years of excess supplies.  What it means for the farmer With all that is going on in Eastern Europe and the global trade disruptions, adding in a big loss to the US wheat crop could create more upside. The KC wheat market in particular may see the best upside here as prices will need to price in exceptionally tight stocks. In the past few weeks, the KC price premium versus Chicago has dwindled but that should begin to elevate as more visibility occurs around the damage in these key growing regions.


Apr 13, 2022

by Kevin McNew

Wheat farmers have been counting down the days until they can harvest their crop and reap record high prices. With the war in Eastern Europe showing no signs of letting up, wheat markets have skyrocketed to unforeseen levels as key supplies from Ukraine and Russia will be less available to world buyers this year. As such, Kansas City wheat futures are above $11 for the benchmark July contract, which is a record high for this time of year. Indeed, it is over twice as high as the average value of $5.30 a bushel that farmers have faced in April over the last 7 years heading into harvest. Planning for Weather Impacts While farmers certainly welcome high prices as harvest draws closer in the next few months, Mother Nature will have her own ability to determine the richness of this year’s bounty. Drought is plaguing much of the key corridors of winter wheat production in the Southwest Plains . A La Niña weather system has kept moisture at bay for much of the fall and winter, and as the crop breaks dormancy soil moisture reserves are severely lacking. But for those farmers that are seeing normal or even above normal crop conditions, that doesn’t mean it is smooth sailing into the harvest finish line. The spring and summer growing season is also a time of elevated severe weather threats . And one of the most detrimental weather perils is hail, which can occur as a result of strong thunderstorm activity.  For wheat, it is most susceptible to hail damage once the crop has reached the head formation stage as damage to the grain kernels can be irreversible. Research by shows that even a moderate amount of hail damage during the start of heading can result in crop losses that are about 50% of normal yields. Unfortunately for farmers, this time of critical crop development coincides with the same point in the season when hail risks are increasing. For farmers that grow wheat in the Plains, it is highly likely that hail will fall in a county where they live. The map below illustrates the incidence of hail falling in a given county during the time of winter wheat heading up to harvest over the past 20 years. In many regions of the Plains, there is an 80% chance of hail falling in a given year. This year, with so much on the line, even areas with lower incidence of hail risk may want to consider some hail insurance. There are many types of hail insurance and various deductibles which allow us to tailor coverage to fit your personal coverage needs at a cost that makes sense. Learn more by . How Does This Apply to Your Farm? Run the numbers with an expert FBN Crop Insurance agent today to see if hail insurance makes sense for you. Call 877-204-4645 or click here to learn more .


Mar 11, 2022

by Kevin McNew

A lot has happened in the 3 short months of 2022. That’s why we felt it was important to take a look at the state of agriculture in 2022 to see what events led us to where we are today and where we’re headed in the future. is meant to bring more transparency to agriculture and help farmers make knowledgeable decisions for their operations.  Watch Kevin McNew, FBN®’s Chief Economist talk briefly about what you can expect in this report and the impact it will have on farmers and agriculture in the coming year.  Watch now How did we get here?  COVID-19 and supply chain issues Both issues have led to increased chemical and fertilizer prices along with other factors that have made it challenging for farmers to source necessary crop inputs. Historic consumer and commodity price inflation With food price inflation at the highest it’s been in over 40 years, key crop prices have spiked due to demand and drought-induced supply shortfalls. War outbreak in Ukraine The war in Ukraine affects wheat markets as both countries account for 13% of global wheat production and 30% of international wheat trade. Without a quick resolution to this conflict, global grain prices will continue to rise.  Key farmer takeaways  Looking to the future, what can farmers expect for the state of ag in 2022? Based on our report, there are a few key takeaways farmers should keep in mind. Grain markets will smash record highs in 2022 U.S. acreage shift not likely to derail price strength Biofuels will provide short and long-game effects to agriculture growth Farmers will face rising costs and see limited profit growth.  Understand the justification for those takeaways and get our full analysis by downloading this free special report below.  Get the free report Watch a roundtable discussion with the authors of the report as they discuss some of the key takeaways and today. Members can access this report and more in the of the app.


Feb 09, 2022

by Kevin McNew

When it comes to finding ways to reduce carbon, farming is often mentioned as a sector that has promise in reversing climate change. This is because farming practices – like cover crops and reduced tillage –  can limit the release of carbon into the atmosphere by “sequestering” it in the soils.   Unfortunately, policies and markets are still trying to evolve that will give needed price signals to farmers for adopting these practices. The idea of a market for “carbon sequestration services” is admittedly abstract, and the varying degree of state, national, and even international policies on carbon has created a difficult landscape for the development of a unified carbon market. Watch now Here, we distill the key factors that we believe will shape the future of Carbon Markets and Farming. Necessary pillars of a carbon market For a market to function properly it generally requires three key actors. These include: Consumers (or buyers) which have a need or desire for a product/service. Producers (or sellers) who can effectively deliver, make or create the product/service.  Institutions that provide rules for fair trade, legal enforcement, or verification. In the case of carbon, the evolution of carbon markets has largely been focused on the service of “carbon sequestration”.  In this context, the consumers of carbon sequestration services are companies that emit carbon as part of their operations. As society begins to impose costs on carbon emission through direct policies that limit carbon, companies must decide whether they will take steps to change their practices (which is costly), or “buy carbon offsets” from a supplier to meet their carbon reduction needs. Here, farmers are one such supply source for carbon sequestration. A company could potentially work with farmers, offering to pay for a set of practices that the farmer will undertake that yields a defined quantity of carbon removal. Hence, a market is born. Today, the market for carbon services is still at its infancy. The world’s first international emissions trading system started in Europe in 2005, which mandated compliance of certain sectors to reduce carbon emissions. This is what is often referred to as a “mandatory” carbon market as government policies require carbon reduction, and this regulatory obligation on companies creates a demand to pay for carbon reduction services. In the United States, regional examples of mandatory programs exist. California created a mandatory system and the Regional Greenhouse Gas Initiative (RGGI) was formed by 11 Northeast states, but today no overarching US system exists as in Europe.  At the other end of the spectrum, you have “voluntary” carbon markets. Here, companies pledge to reduce their carbon footprint and these promises generally involve a mix of own-company emission reductions with additional reductions achieved through open market purchases of carbon offsets. Unlike a mandatory market, companies have no legal obligation to reduce carbon and as such their demand for carbon services could be viewed as less robust than those companies that fall under mandatory authorities. However, investor and societal pressure are signaling more companies to engage openly in carbon reduction making voluntary participation by companies necessary for future financial success.  In this space, food and ag companies like Tyson, Unilever and Danone are just a few examples of companies actively engaging at the farm level around carbon in an effort to meet corporate sustainability goals. Drivers of carbon services: Grain buyers  Today, grain buyers and end-users are still trying to find value in the carbon space. One avenue where there are direct linkages is in ethanol. Here, US ethanol manufacturers have a direct line into a carbon-tied market through California’s Low Carbon Fuel Standard. This policy scores motor fuels differently based on the carbon intensity of the product.  Fuels that are produced with a low carbon score are rewarded versus high carbon fuels which are not. Under this yardstick of carbon intensity scoring, ethanol gets a fixed premium regardless of how the underlying feedstock was produced.  POET, which buys around 1 billion bushels of US corn every year to make ethanol, in conjunction with , has been advocating the California policies be adjusted to allow for a variable score that would be derived from practices used at the farm level. Corn produced from practices that reduce carbon (or what is deemed a low carbon intensity score) would fetch a premium, thereby giving the farmer a price signal to adopt more carbon friendly practices.  To date, most of the effort by POET and other grain buyers has been around building an understanding between carbon intensity scores and farming practices. Indeed POET and have been researching this issue with real-world farm trials. The results of these studies are impressive on two fronts: If you simply look at existing practices that corn farmers use today (or at least as represented by their sample of farms) then the carbon intensity score of the average is better off than what California currently pays today as a fixed rate for ethanol. In other words, by not taking into account existing agricultural practices of corn production, farmers are losing out on possible value. Even more important, if the California laws were optimized to reflect the carbon intensity of each unique farm’s practices, the potential rewards to a farmer would be impressive. POET and found some premiums for low-carbon corn could be as high as $0.75 a bushel. Opportunities for farmers in evolving carbon markets So far, our discussion has mostly centered around the linkages up the chain to the fuel market. But in grain, are there opportunities from a carbon-based grain buying program for food and feed end-users?   The answer is yes according to Steele Lorenz, ’s Head of Sustainability. Companies are setting clear goals at reducing emissions and offering transparency about their progress. This is especially true for publicly traded companies. reported that over 40% of Corporate Annual Reports they sampled had clear targets for greenhouse gas emissions. Today, works in tandem with Tyson Foods around their used for feed grown with sustainable practices.  While the food and feed space today may not have clear linkages to regulations which provide market-based incentives for carbon reduction, there are still important indirect consequences for companies that are not taking these steps. First, financial institutions like banks, investment firms and insurers are increasingly requiring or at least monitoring company metrics on these goals thereby signaling the importance that companies have demonstrated programs for carbon reduction. Second, while policies that drive carbon reduction may not exist today, they likely evolve in the future, giving early adopting companies a competitive edge if carbon regulations are enacted. Our view on the future of carbon markets and linkages back to farms for value creation is bullish. There is still much to be done around policies, institutions, and systems that will support the transmission of carbon value back to the farm but those necessary building blocks will likely be stood up in coming years.  What will a farmer need to do? More than crop practices  Carbon based markets for agriculture are still yet to be fully formed. Will carbon intensity of a farm product like corn be the attribute that is valued? Or will companies act to “buy” carbon sequestration services, and as such the amount of carbon sequestered by a farm will become the traded metric. These two paths of how carbon could be traded – as an “Attribute” using carbon intensity, or as a “Volume” based on the amount of carbon sequestered – are not necessarily restrictive in terms of companies or farmers choosing one or the other but they could involve subtle differences worth considering. In an Attribute system, carbon intensity becomes a verifiable and priceable metric assigned to every bushel of grain. This is not too dissimilar from how grain is treated today based on grades for moisture, protein, etc.. But here, the carbon intensity score must be verified based on the inputs and practices used. Farm records on farm fuel use, types of fertilizer and amounts are data points that will be necessary to verify and compute carbon intensity. Farming practices like tillage and cover cropping also play into scores. For a Volume system, which trades carbon as a financial asset directly, the farmer will need data and verification on tillage practices and cover crops. These will likely involve longer term commitments by the farmer to maintain those practices across a multi-year program, thereby assuring the buyer a fixed supply for a lengthy period of time. In contrast, an Attribute system will likely be tied to specific bushels sold and as such farmers could maintain flexibility around their willingness to participate.   Regardless of which way a farmer goes, the cornerstone of either program will be data. This will start with machine readable data like what is generated from modern planter, applicator and harvester equipment.  Those data sources will likely become industry requirements for participation and streamline verification and value creation back to the farm, so making those investments today may help reap benefits quickly once carbon markets develop.


Jun 23, 2021

by Kevin McNew

U.S. farmers face mounting pressure to deal with rising grain prices as drought conditions expand throughout key grain producing regions.  As temperatures continue to rise, drought conditions in the West have already been an indicator that growers will face higher prices .  With worrying conditions on the horizon, what does the current data tell us about the situation? Corn FBN® US corn drought index is now at 13%, trending above the 5% norm for this time of year and up from 11% last week.  Key states of IA, MN, SD and ND are seeing the worst drought index reading for this time of year based on 21 years of data. Soybeans Spring wheat For spring wheat, 5 of the top 6 producing states are also at all-time high drought readings for this time of year. Winter wheat Looking ahead Some relief could be on the way from a Tropical Storm system developing in the Gulf of Mexico, and expected to reach the Midwest June 25-26th. However, weather models are in disagreement about how much rain will fall as well as the location of the rain, making the next week highly volatile for grain prices.  Looking ahead into July, weather is expected to bring above normal temperatures and below normal rains to drought parched areas in the Northern Plains and Western US providing few signs of relief. Get real-time marketing advice FBN® Market Advisory provides personalized tools and reports to support your grain marketing efforts along with market news, recommendations, trend insights and weather reports.


May 27, 2021

by Kevin McNew

With global grain supplies razor thin and China buying record-large volumes to stoke their hog expansion, grain prices have reached their highest mark in over seven years. And with the 2021 U.S. growing season just getting kicked off, Mother Nature seems intent on pushing prices even higher.  Dry conditions have plagued a wide swath of the U.S., especially the West where drought is firmly entrenched and not expected to find much near-term relief ( US Seasonal Drought Outlook, Climate Prediction Center, NOAA ) . In the key grain growing states from the Plains to the Eastern Seaboard, drought conditions are perhaps not as severe as the West, but they are worrisome given the tight grain supply situation. Any hint of production problems from the U.S. grain belt could prove explosive for grain markets. Some in the farming sector ( Drought Threatens Part of North America ) are starting to compare drought-like conditions in effect today to those at the start of the 2012 growing campaign. That year went down as one of the most heat-scorched and dry summers in recent history. In 2012, the continental United States experienced the highest average temperature for June to August since 1936.  In corn-rich Iowa, daily high temperatures averaged 88 degrees in the summer of 2012 — 5 degrees higher than normal. And precipitation was a paltry 4 inches over the July and August period compared to 8.5 inches normally. The end result was a disaster for crop yields, with corn and soybeans yields suffering steep losses. And grain markets set new record highs as a result.  A common weather saying is that "Drought begets more drought.'' When soils are dry, the sun's energy heats the air instead of evaporating water. That raises temperatures, which leads to more dryness, which allows drought to spread even further. And if that is the case, then a wide swath of the country is in for a challenging summer season.  According to the widely-watched drought monitor system at the University of Nebraska, 44% of U.S. counties are in some measure of dry or drought-like conditions as of May 20, 2021. While that is extensive, it is still shy of the situation in 2012 at this time of year, when nearly six out of every 10 counties were seeing the effects of some form of drought. The two maps below illustrate the similarities and differences between current conditions (top map) and what occurred in 2012 (bottom map) at this time of the season.  Today’s drought is exceptional in the Mountain West and cascading into the Upper Great Plains region. Drought existed in these areas in 2012, but not at the level of intensity seen today. In 2012, as is the case today, the heart of the Grain Belt is facing some degree of dryness or drought-like conditions from the Plains to the Midwest.  Perhaps the biggest and most important difference is the Delta and Southeast region. In 2012, this region of the country was firmly gripped by drought. But today, that region's biggest issue is too much rain. It is the Delta region where the two years diverge the most, and indeed holds a crucial key that explains why it seems unlikely that 2021 will be a repeat of 2012. In 2012, moisture emanating from the Gulf of Mexico was blocked from flowing up through the continental U.S. as a result of tropical disturbances. This cut off the Central U.S. from its principal source of summertime moisture. But this year, the exact opposite is in play.The moisture out of the Gulf region has an unobstructed runway into the U.S., bringing lots of moisture and, in some regions, too much moisture. Areas from Eastern Texas to Mississippi have been deluged with over 20 inches of rain in the past 60 days. These nearly continuous storm tracks generally make their way into some parts of America’s Grain Belt. Missouri has been a big benefactor, getting above-average rains in the past 45 days, but beyond that, some states have missed or only partially caught some of these moisture systems.  The naturally occurring weather phenomena known as La Niña is fading as the U.S. enters its summer growing season. The La Niña, and its weather sibling, El Niño, are terms used to describe either cooler or warmer-than-normal sea temperatures along a section of the equator in the Pacific Ocean, known collectively as the ENSO Phase. Scientists have long recognized that depending on which ENSO Phase is in play (or Neutral if it's neither of the two phases), it can lead to important and predictable weather patterns around the globe ( see NOAA’s ENSO site ).  In April, the La Niña classification was removed as sea temperatures near the equator warmed enough to push the ENSO Phase to Neutral. But while the classification from one phase to the next is a matter of sea temperature metrics, that does not imply there is a clean switch in the weather patterns. Just like an overstimulated and tired toddler oscillates between wanting to sleep and staying awake for more excitement, so too does the La Niña phase not quietly drift away once it's no longer the listed ENSO Phase. As such, weather patterns at times can still exhibit La Niña-like conditions. For the U.S., this La Niña pattern is typically a dry West and southern part of the U.S., coupled with cooler and drier weather out of western Canada and the Northern-tier U.S. states. But again, we are not exactly in La Niña, so the weather in recent months has appeared La Niña-like at times, but then shifted dramatically to the opposite extremes.  Heading into the summer, this bimodal weather behavior is expected to continue although the oscillations should die down. The expectation based on coming out of a La Niña is that the U.S. spring and summer will have drought-like conditions persisting, especially in the West and into the Central/Northern Plains. How severe and how far that drought creeps into the heart of grain country will be a central question for farmers and commodity traders alike as both closely watch each iteration of weather forecast models that foretell coming rain events. Unfortunately, that could be a fool's game  in a year without a clear direction from the ENSO phase. Because ENSO phases are a tell on global weather patterns, most forecasting models integrate that lean into their underlying wiring. But when the ENSO cycle isn’t in play, or worse, when it is in a state of flux between two states, that can really throw off short-range forecasts, especially for precipitation, which is a necessary elixir for farming and crop growth. Indeed, the current meteorological conditions are such that the most popular and widely-used U.S. forecast model, NOAA’s Global Forecasting System (GFS) is tending to put more precipitation in forecasts than is actually being realized. Because the GFS is a large-scale numerical algorithm constructed from countless mathematical equations trying to capture the earth’s atmosphere and seas to predict future weather, it is only as accurate as the underlying equations can dictate. And its errors are not easy to correct, but it is important for observers to realize the limitations of precipitation forecasts — especially in a year like this. To illustrate the wide-scale errors that can happen, the maps below depict the forecasted precipitation from the GFS (on the left), and the actual precipitation that fell (on the right). The forecast was made on May 12, 2021 for the upcoming May 18-20 time period, or about a week ahead.  In that forecast, there was a great degree of precipitation expected with dark green areas showing many farmers would be in the path of 2 inches of rain and at least some meaningful moisture expected in drought impacted areas of South Dakota, Minnesota and Western Iowa. Unfortunately, many fields were missed or saw significantly less rainfall than was projected. Wide swaths of Western Minnesota saw zero or only trace amounts of rain and the dry areas of Iowa and South Dakota came up short compared to expectations given by the weather forecast. For example, in the forecast the entire state of Iowa was expected to receive a state-wide coverage averaging 1.1 inches, but when the time came it got only 0.55 inches. This seemingly small miss, has massive economic ramifications for the country’s largest corn producing state if rainfall forecasts continue to come up short. As the growing season progresses even more attention will be paid by the farm sector to the weather predictions. But at least in the near-term, caution should be taken in placing too much emphasis on overly optimistic rainfall projections. Faced with exceptionally tight supplies and skyrocketing demand, every bushel will be critical to help stave off even higher grain prices. Early season drought does not bode well for a banner production year in the U.S. grain belt, but it's the early innings of a long ball game. Weather in June, July and August, the critical time for the U.S. corn and soybean crops, will determine if farmers hit a home run or strike out this season. That said, weather is not random, just hard to predict. And areas that are dry today have better than coin-flip odds of being dry and problematic into the summer.  For farmers in these drought areas, here are some strategies to consider this season: Farmers should adjust chemical applications especially herbicides to assure that they are applied earlier to smaller weeds before they develop thicker leaf surfaces that make herbicide penetration challenging. Adding adjuvants to the herbicide mix can help weed absorption issues. With yield at elevated risks, lessen your exposure to contracts for physical delivery. A wide scale drought coupled with lack of bushels to fulfill delivery terms to your elevator could lead to a double whammy of canceling contracts at even higher price levels late summer or fall. An alternative is to utilize futures or options contracts. They give you the ability to manage volatility without the underlying risk of having to deliver bushels to a buyer.  While crop insurance signups are in the spring making it too late to adjust levels of coverage today, weather-based crop insurance products exist that help cover the financial losses from lack of moisture or heat stress. These index-based products are available at a local level and trigger a payment based on either rainfall or temperature below or above a certain threshold.  Cattle operations should explore ways to adjust feed needs. Pastured livestock may need supplemental feed sources sooner than normal, and cattle feeding operations may find no relief this summer and fall for lower feedstuff prices. Examine your ration options to switch to alternative feed commodities and carefully evaluate the tradeoffs between cattle performance and feedstock pricing in picking a path forward. Earn $250 for Every Friend Referral to FBN Direct ® Always use the most conservative label instructions when adding an adjuvant to a solution. Remember: Geography and accompanying weather and soil conditions impact the functionality of adjuvants. If there are gaps in the language on the label, consult an agronomist before use.


Jan 19, 2021

by Kevin McNew

With the U.S. coming under a new president this month, it seems useful to explore the likely policy moves and directives that President-Elect Biden will make as it relates to U.S. agriculture. While much of the new administration’s early efforts will be to respond to the Covid-19 crisis, he also will likely put into play his broader priorities that his campaign signaled. Of those, Biden has made clear he will move quickly to address policies that counteract climate change and those could have tangential impacts on U.S. agriculture. In terms of trade, Biden’s overarching views do not differ substantially from Trump in terms of China and other countries that the U.S. believes have unfair trade practices.  Here we try to enumerate what we see as the likely direction on U.S. policies under Biden and what effects that could have on farmers and commodity markets. Biden’s climate change policies can be classified into two tiers. The first is new policies designed to create taxes and tariffs on poor climate practices. Oil and gas are likely to be central to that approach but it has also been put forward that imported goods into the U.S. would be environmentally scored with a tariff cost imposed for climate unfriendly production.  The second policy method will be to encourage green energy practices and reduce the carbon footprint. Here, there is quite a bit of discussion on investment and research to fast-track clean energy production and infrastructure, especially as it relates to the transportation sector. The Biden campaign mentions the positive environmental impacts of ethanol but seems to put added emphasis on advanced biofuels which likely means policies that liberalize corn-based ethanol use are not likely to expand greatly. Agriculture is also viewed as a partner in climate objectives as the Biden road map specifically calls out farming practices as a tool. Biden’s plan calls for investing in climate-friendly farming such as conservation programs for cover crops and other practices aimed at restoring the soil and building soil carbon.  However, the particulars of what those incentives would look like are not well known. Trade policies likely to stay on current course While Trump and Biden share similar views around foreign countries that have unfair trade practices, their approaches for resolution and restitution are sharply different. While Trump was willing to pull out of multilateral trade agreements and institutions to impose the U.S. will, Biden will likely move the U.S. back into favor with global partners.  Of most importance is the situation with China, still under a Phase 1 trade agreement. Biden will likely not take a head-on fight to China but also given his pro-labor slant will likely not give much latitude to China in regards to subsidies and intellectual technology transfer that were sticking points of the trade war. The Trans Pacific Partnership also remains a significant unknown as the U.S. has been left out of that key trade agreement into Asia. Biden has not given attention to any plan to bring his country back to the TPP as he was emphasizing the protection of domestic industries. In recent months, the U.S. dollar has fallen which is a key factor in a reversal of fortune for U.S. grain prices. That trend likely continues under Biden as geopolitical trade risks are reduced under the new administration and the U.S. Fed likely resorts to more money printing and bond buying activity to support the economy. All of these factors would help bring the dollar more in line with long-run norms and out of the overarching heights of the past few years.  But, probably the biggest factor to benefit U.S. farmers is the changing feed grain landscape in China. After removing its corn production subsidy several years ago to work down large surpluses, China now finds its stockpiles depleted and needing to fill the gap between limited domestic production and growing demand from the international market. After importing about 2 to 4 MMT of corn in recent years, USDA upped the ante for the 2020 crop year to 13 MMT and even USDA’s Ag Attache to China suggests needs are closer to 22 MMT for 2020. While this has short-run impacts on prices, it also likely means that the future will see 20 to 25 MMT of China corn imports, something the current global market has not adapted too. As such, we see this as a catalyst going forward that will need to entice more corn acres, especially in 2021 where U.S. futures prices are not particularly impressive to bring on new supplies. What it means for the farmer More predictability on policies and trade should be key features going forward under a new administration. And while farmers may see some new programs that encourage sustainable practices, the future looks particularly promising as economics work to favor U.S. exports thanks to a weak dollar and a Chinese demand that should be a key U.S. market going forward unfettered by trade disputes.


Nov 02, 2020

by Kevin McNew

The La Niña weather pattern is likely to persist through the winter, according to NOAA’s Climate Prediction Center. In past analytical work, FBN® has shown that this increases the odds of dry and hot weather for South America and can have some noticeable impacts on yields, especially in Argentina. But what about implications for the U.S. growing season in 2021? Does the occurrence of a La Niña in the fall season have any far-reaching implications for the upcoming spring and summer growing season? To answer that question, we explored 41 years' worth of weather and yield data to see if there was an association between a La Niña in the fall and the following year’s spring and summer climates.  Here is what we found: First, in a La Niña fall, this tends to be associated with a drier/warmer West and a cooler/wetter East for the United States. This year is verifying that pattern, as the West is nearly engulfed in drought while the Eastern U.S. has had a stray flow of tropical storms to keep soil moisture levels elevated. For crops, the most immediate impact is on winter wheat, as key growing areas grapple with some degree of drought.  Historically, a fall La Niña tends to be associated with a persistence of dry and warm conditions in spring for the Southwest Plains, especially for Texas and Oklahoma. For the Corn Belt, spring conditions are more split, with a dry bias in the Western Corn Belt while the Eastern Corn Belt remains wetter than normal. By summer, the patterns start to break down, with more moisture tending to favor the Western Corn Belt while the Eastern Corn Belt dries down. Equally important, there is no strong tendency to see warmer-than-normal temperatures in key corn and soy growing regions. But, the Northern Plains regions of Montana and North Dakota tend to be warmer and drier in the summer. For U.S. yields, there is no compelling evidence to suggest strong deviations from normal in the upcoming growing season when the previous fall was classified as a La Niña. For corn, there is a modest uptick in yields for years following a La Niña fall season. For soybeans, though, there is a modest downgrade in yield. The most convincing data is for spring wheat, which tends to see lower yields in seasons following a La Niña fall, likely due to the associated dry and warm conditions in the Upper Plains.  While there is little empirical reason to suspect U.S. yields will be affected next season by the current La Niña weather pattern, it does seem likely that the dry and warm climate of the Southwest Plains and Western Corn Belt will persist into spring. This could be market supportive as the balance sheet environment tightens and traders will likely place added emphasis on spring weather. Want access to more insights like this? This article is excerpted from our Market Intelligence newsletter, delivered weekly to FBN® Market Advisory  members. With Market Advisory, you'll receive truly tools and reports to support your grain marketing efforts. Get access to market news, straightforward marketing recommendations, basis trend insights and weather reports — all relevant to your operation and geographic location.