Drought risk keeps US soybeans, corn farmers jittery amid supply cut possibilities

The prolonged dry weather across the key regions of the US -- especially in the eastern Corn Belt and northern parts of the Midwest -- has stoked fears of drought for the corn and soybeans farmers, according to market sources.

The crop yield usually suffers during severe dryness, leading to sharp cuts in production and tightening supplies.

Anticipating the possibility for supply cuts in marketing year 2023-24 (September-August), the basis prices of both corn and soybean crops have risen in recent days.

Platts assessed CIF New Orleans corn for June deliveries at $274.50/mt June 16, up $10/mt week on week, and SOYBEX FOB New Orleans at $558.69/mt, $22/mt higher week on week, S&P Global Commodity Insights data showed.

Drought fear rising

The three-month outlook hints toward an extended period of warm and dry weather across major parts of the Midwest, the US Climate Prediction Center said June 15.

June to August is usually a critical development period for corn and soybeans crops in the US, market analysts said. So, while June was relatively dry, the Midwest will need sufficient rainfall in the upcoming months for crop development.

The current situation across major soybean and corn producing states does not look promising.

According to the US Drought Monitor report released June 15, about 49% of Iowa was suffering from drought in the week ended June 17, while 65% of Illinois and 75% of Nebraska were also under drought conditions.

Commodity analysts see sharp cuts in output potential for both corn and soybeans if the dryness persists in the upper Midwest and eastern Corn Belt, and to some extent in the southern plains.

The crop conditions ratings for corn and soybeans are already plunging amid a relatively dry June.

In the crop progress report for MY 2023-24 released June 12, the US Department of Agriculture showed 61% of corn and 59% of soybeans in good-to-excellent conditions, down 11 percentage points each for both crops on the year.

There is a general consensus among the market analysts that the crop ratings for both corn and soybeans will fall another 3-5 percentage points in the upcoming USDA's crop progress report, due on June 20.

The US is forecast to produce record volumes of corn and soybeans in MY 2023-24. Corn production is pegged at 387.75 million mt, up 11% year on year, while soybeans output is projected at 122.7 million mt, up 5% on the year, the USDA said June 9 in its World Agriculture Supply and Demand Estimate report.

Given the dry weather trend in key parts of the country in June, market analysts think the USDA's projections are a little optimistic.

There is a forecast for some rains by late June across the Midwest, according to the meteorologists, likely to bring temporary relief. But the fate of US corn and soybeans production in MY 2023-24 is now likely to be decided by weather in July and August.