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Impact of Summer Heat on U.S. Crops and Black Sea Export Issues
Illinois Ag Connection - 09/12/2023

The impact of scorching summer heat on maturing U.S. crops has ignited a debate within grain markets, with uncertainty prevailing as observers assess the extent of potential crop damage.

The U.S. Department of Agriculture (USDA) is expected to provide some clarity next week when it releases its world supply and demand report, scheduled for Tuesday. This monthly report will update the agency's projections for the upcoming fall harvest.

Grain prices have experienced fluctuations, with indications in late August suggesting that corn and soybean crops might be adversely affected by unseasonably hot and dry conditions. Currently, most-active corn futures are down 0.1% at $4.86 a bushel, while soybeans are up 0.3% at $13.63 a bushel, and wheat is down 0.1% at $5.99 a bushel.

Analysts are in agreement that the challenging weather conditions experienced in late August, coupled with sporadic hot and dry spells throughout the summer, will lead to a downward revision of the USDA's crop outlook this month. However, the extent of this revision remains a subject of debate.

In August, the USDA projected that U.S. corn production would reach nearly 15.11 billion bushels, with an estimated yield of 175.1 bushels per acre. Soybean production was estimated at 4.21 billion bushels, with a yield of 50.9 bushels per acre.

The impact of weather on corn and soybean crops varies based on planting times. Corn is typically planted from April to May, while soybeans extend from May into late June. Consequently, the younger soybean crops are more susceptible to late summer weather volatility, while the more mature corn crop is approaching harvest readiness.

Simultaneously, the issues surrounding Russia's Black Sea grain exports persist. Russian Agricultural Bank subsidiary RSHB Capital S.A. in Luxembourg may apply to SWIFT within 30 days, as communicated by the United Nations. This move could facilitate access to the international payments system for food and fertilizer transactions. Russia's grain and fertilizer exports remain unaffected by Western sanctions; however, payment, logistics, and insurance restrictions have impeded shipments.

Russia has been adamant about the reconnection of its state agricultural bank, Rosselkhozbank, to the SWIFT international payments system. This connection was severed by the European Union in June 2022 following Russia's invasion of Ukraine.

Efforts are ongoing to diversify Ukraine's export routes, including plans for infrastructure upgrades in the Black Sea port of Constanta, Romania, which will facilitate the transit of more Ukrainian grain.

The fate of U.S. crops in the face of summer heat and the resolution of Russia's Black Sea grain exports remain uncertain, with market observers eagerly awaiting the USDA's forthcoming report and diplomatic efforts to address export challenges.

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