CROP TOUR. U.S. Drought Monitor. It s December, but all grain markets are paying close attention to intense drought covering U.S.

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1 CROP TOUR Crop Tour Insert Vol. 6, Issue 5 December 2012 Special supplement to Pro Farmer newsletter It s December, but all grain markets are paying close attention to intense drought covering U.S. Abnormally Dry Moderate Drought Severe Drought Extreme Drought Exceptional Drought U.S. Drought Monitor As of Dec. 11, 2012 We haven t even done half of our scheduled Pro Farmer Profit Briefing Seminars and it s already clear the biggest concern among farmers is the potential for another drought in In Columbus, Ohio, seminar attendees wanted to know exactly how dry is it out west? Ohio saw crops suffer from dry mid-season conditions, but farmers then slogged through a wet harvest. That erased drought conditions in the central and eastern parts of Ohio, but attendees at the Columbus seminar warned the crop-intensive area of western Ohio remains very dry. Dry conditions and potential impacts on 2013 production have all U.S. farmers on edge as they consider and crop sales. Some are also considering low-water cropping alternatives. U.S. Drought Monitor U.S. Drought Monitor As of Sept. 11, 2012 As of Dec. 13, 2011 Compared to three months ago, drought conditions in the far-eastern Corn Belt have improved greatly, but drought has intensified in the central and western Corn Belt. Drought has also intensified in the Southern Plains. In the Northwest U.S., drought conditions have improved with recent above-normal rains. Last year at this time, we were concerned that the tank was empty heading into the 2012 growing season. But this year s fall-winter drought is much more intense and much more widespread. There s still time to correct drought conditions for the 2013 season, but conditions are far-more threatening this year than at this time last year. Professional Farmers of America P.O. Box 36, Cedar Falls, Iowa Subscription Services: Editorial: Professional Farmers of America, Inc. address: editors@profarmer.com

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3 Crop Tour After iffy start, Brazil conditions improve but Argentina remains wet Percent of Normal Seasonal Rainfall (Sept. 1 - Dec. 10) % of normal soil moisture 90%-100% 80%-90% 70%-80% 60%-70% 50%-60% 40%-50% 30%-40% 20%-30% 10%-20% 0%-10% No Data Percent of Normal Soil Moisture (As of Dec. 10) Mato Grosso Mato Grosso % of Normal >200% 150%-200% 125%-150% 100%-125% 75%-100% 50%-75% </=50% No Data Mato Grosso do Sul Parana Rio Grande do Sul Mato Grosso do Sul Parana Rio Grande do Sul Conab puts bean crop at 82.6 MMT Conab is Brazil s equivalent of our National Ag Statistics Service (NASS); it s responsible for supply-side crop estimates. Last week, the agency put the Brazilian bean crop at 82.6 million metric tons (3.035 billion bu.), compared to its earlier range estimate of 81 MMT to 83 MMT. If right, the Brazilian bean crop would be 24.5% bigger than last year s drought-hammered crop. Planted bean acres for this year are estimated at million hectares ( million acres), up 8.8% from last year. The soybean yield is estimated at 44 bu. per Dr. Cordonnier s Soybean Production Estimates Current Maximum Minimum Year-ago estimate potential potential actual (million metric tons) Brazil Argentina Paraguay Bolivia Uruguay Total Current Total estimate is up 29.4% from year-ago. Dr. Cordonnier s Corn Production Estimates Current Maximum Minimum Year-ago estimate potential potential actual (million metric tons) Brazil Argentina Paraguay Bolivia Uruguay Total Current Total estimate is down 1% from year-ago. acre, up from last year s 38.4 bu. per acre. Mato Grosso is expected to produce about 28.8% of the Brazilian crop with Parana at 18.4%, Rio Grande do Sul at 14.4% and Goias at 11.0%. As of Nov. 30, Conab says 88% of the Brazilian bean crop was planted, 8% of the crop was flowering and 3% of the crop was already setting pods. The most advanced crop is in Parana with bean development in Mato Grosso close behind. Continued page 7 Argentina still dealing with soggy conditions Argentine growers are trying to harvest wheat, plant full-season and double-crop soybeans and finish planting corn all at the same time due to extremely wet conditions across the main corn-growing areas. As of last week, only 55% of the corn crop was planted and growers in Argentina are now deciding whether to stick with corn or switch intended corn acres to soybeans. This means lower corn crop estimates in the weeks ahead. Percent of Normal Soil Moisture (As of Dec. 10) 90%-100% 80%-90% 70%-80% 60%-70% 50%-60% 40%-50% 30%-40% 20%-30% 10%-20% 0%-10% No Data Crop Tour page 3

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5 Crop Tour Based on history, expect below-trendline corn yields again in 2013 That s the summary from Iowa State University climatologist Elwynn Taylor (see the Dec. 8, 2012, Pro Farmer newsletter for details). And many crop- and market-watchers are beginning to agree with Taylor s warnings. Purdue University ag economist Chris Hurt weighed in on crop concerns last week, saying U.S. corn yields have been below-trend for three years, and more farmers now recognize the possibility of four poor crops in a row. This, of course, means that normal crops and sharply lower prices are far from a reality. Prices won t move sharply lower until crop production becomes more assured as the 2013 season progresses. Hurt continues, As long as the drought threat remains as large as it is today, new-crop corn prices could stay higher with the risk premium. If the drought risk were to be eliminated, then new-crop prices would likely drop. The weather threat could be reduced if more rain arrives, but can t be eliminated until next year s corn growing season reaches mid- to late July. So while a return to normal production could mean $5.50 corn, Hurt says continued drought in key production states could still mean new-crop corn prices of $8.50 per bushel. Weather watchers still uncertain over La Niña vs. El Niño Sea Surface Temperature Anomalies as of Dec. 13, Departure from normal temperatures in C Weather watchers are paying close attention to the blue spots on this map. They show sea surface temperature (SST) anomalies, and the darker the blue, the cooler the SSTs are compared to normal. Cooler-than-normal SSTs reflect La Niña conditions, which were in place during the 2012 growing season. SSTs were trending to warmer-than-normal levels, which would indicate the development of El Niño conditions. An El Niño episode ups the odds of a normal to wetter-thannormal growing season in the U.S. Midwest. The threat of a double-dip La Niña is adding uncertainty to the 2013 growing season here in the United States. Last year s La Niña also resulted in widespread drought over a wide portion of Brazil and Argentina. Keep a close watch on this issue. A move back to El Niño would make us more willing sellers of 2013 corn and soybeans. Drought outlook not favorable for HRW When USDA stopped issuing weekly crop condition updates, ratings for the hard red winter (HRW) wheat crop were at record low levels. Since then, conditions have likely deteriorated further and the long-term outlook from the National Weather Service s Climate Prediction Center points to continued stressful conditions leading up to the spring 2013 green-up of the crop. Without weekly reminders of poor HRW conditions until April next year, poor HRW conditions are likely to be a backburner factor for wheat prices this winter. Drought to persist or intensify Drought ongoing, some improvement Drought likely to ease, impacts ease Drought development likely U.S. Seasonal Drought Outlook Through February 2013 Released Dec. 6, 2012 Crop Tour page 5

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7 Continued from page 3 Crop Tour PF South American crop consultant Dr. Michael Cordonnier is sticking with a Brazilian bean crop estimate of 80 MMT (his South American estimates are on page 3). He says, The condition of the crop is approximately 95% good and 5% average. After a delayed start to planting in Mato Grosso, the crop is generally now in good condition. Soybean rust (SBR) is an ongoing concern in the state, but only six cases of rust have been confirmed in the state. Dr. Cordonnier says there have been only 14 cases of SBR confirmed across Brazil so far this year. He says, The number is obviously still at a very low level and I am surprised the number has not increased faster than it has. Rust cases start to increase in January, which corresponds to the general peak of the rainy season. The high relative humidity and frequent showers are ideal conditions for the spread of the disease and it also makes control measures more difficult. Wet weather at this time can make spraying more difficult and it can also wash off some of the protective fungicide. He says the biggest concern for the rest of the growing season lies in the waters along the equator in the Pacific Ocean. If the waters remain in a neutral status, there is a higher possibility that weather in southern Brazil during December through February could be drier than normal. If conditions tilt toward a mild La Niña, odds also tilt to drier-than-normal weather, says Dr. Cordonnier. If SSTs turn warmer-than-normal, southern Brazil is more likely to see normal to above-normal rains. He concludes, The weather in southern Brazil needs to be watched closely, but at this point the soybean crop is developing normally. Therefore, the Brazilian soybean estimate was left unchanged this week at 80 MMT and I am neutral toward the crop at that level. Brazilian corn crop estimate stands at 70 MMT Already, the early planted full-season corn in southern Brazil is in the middle of pollination. In Parana and Rio Grande do Sul, the corn should reach 50% pollination sometime over the next two weeks, according to Dr. Cordonnier. He says, The moisture situation improved during the first 10 days of December, but the soil moisture has not been fully recharged. New moisture concerns could emerge if rainfall is less regular over the next two weeks. Final corn acreage will depend on January through February rains, but Dr. Cordonnier says more than half of the Brazilian corn crop will be planted after the soybean harvest. Interest in the safrinha corn crop is very high and seed companies report the most popular corn hybrids are sold out. Dr. Cordonnier says he has two concerns about the Brazilian corn crop: A reemergence of the drier weather pattern in southern Brazil and a potential early end of the rainy season. For now, however, he says, The Brazilian corn crop estimate was left unchanged last week at 70 MMT and I am neutral toward the crop at that level. Still hustling to plant soybeans in Argentina The Argentine soybean crop is now approximately 63% planted, which is still about 10 points behind the normal pace. Dr. Cordonnier says, Farmers in Argentina spent most of their time last week planting soybeans and they managed to plant 1.8 million hectares before heavy rains drove them out of the fields once again. In central and northern locations, soybean plantings are at 60% to 80% complete. In southern locations where it has been wetter, the crop is only 50% to 60% planted. Slow planting progress is the biggest concern for the bean crop, according to Dr. Cordonnier. My main concern, he says, is a significant portion of the full-season soybeans are going to be planted at the same time as the double-crop soybeans. These late-planted soybeans could do fine if the weather cooperates for the rest of the growing season. But in general, the later-planted soybeans do not yield as well as earlier planted beans. Even if soybean acreage increases, the potential soybean yield may be compromised by late plantings. Therefore, the Argentine soybean estimate was left unchanged this week at 56.0 MMT and I have a neutral bias toward the crop at that level. Argentine corn crop estimate unchanged Dr. Cordonnier reports 61% of the Argentine corn crop has been planted. Over the past week, corn planting remained slow and progress is still about 10 points behind the normal planting pace. The main corn area of Argentina was wetter last week than was the main soybean area, says Dr. Cordonnier, which allowed Argentine growers to focus more intently on soybean plantings. In central and southern Argentina, the planting window for corn generally closes by mid- December, but it does stay open a little longer in far northern Argentina. Dr. Cordonnier reports of the original corn planting intentions there are approximately 783,000 hectares (1.918 million acres) left to be planted in northern Argentina; 360,000 hectares (882,000 acres) in central Argentina; and 382,000 hectares (936,000 acres) in southern Argentina. He explains, Since I have already reduced the Argentine corn acreage by 10% from the original intentions, I m sticking with that acreage estimate this week. The Argentine corn crop estimate was also unchanged this week at 22.5 MMT. Argentine acres could move to soybeans Dr. Cordonnier says, If wet weather continues to delay corn planting in Argentina, it is entirely possible that soybean plantings may end up being larger than originally anticipated. I have been using a soybean acreage estimate of 20.5 million hectares ( million acres), which is on the high-end of the range of estimates. I am probably going to leave the acreage estimate at that level for now. Rains making for sloppy Argentine wheat harvest As growers in Argentina are trying to plant corn and soybeans, they are also trying to harvest a wheat crop. In this week s Pro Farmer newsletter, we detail the potential impacts, including Argentina s decision to cut wheat exports by 25%. Yields are disappointing and crop quality is a major concern due to heavy flooding throughout the country s grain belt. Crop Tour page 7

8 Soybean rust is quietly widespread across the southern U.S. in early December USDA observations of soybean rust (SBR) in December 2012 turned the rust map as red as it has ever been. With the bean crop harvest long over, the impact to the bean crop was obviously limited, but the confirmed detections of SBR increases the need for some cold temps in the Mid-South to kill the rust spores. In the Dec. 12, 2012, update, USDA says, SBR spread throughout much of the southern United States with some activity reported in the Midwest and states along the eastern seaboard. On Dec. 12, SBR was reported in one county in Georgia. On Dec. 11, SBR was reported in one county in Texas. On Dec. 7, SBR was reported in one county in Louisiana. On Dec. 5, SBR was reported in four counties in Georgia. On Nov. 28, SBR was reported in two counties in Georgia. On Nov. 27, SBR was reported in one county in Louisiana. On Nov. 19, SBR was reported in two counties in Louisiana. In 2012, SBR has been reported in 374 counties in the USA including those in Alabama (67), Arkansas (20), Florida (10), Georgia (79), Illinois (1), Kentucky (2), Louisiana (58), Mississippi (82), North Carolina (2), South Carolina (27), Tennessee (15), Texas (2) and Virginia (9); and there have been 13 reports from Mexico. With the mild weather since the end of the soybean growing season, the soybean rust pathogen is expected Soybean rust observations as of Dec. 12, 2012 to increase on kudzu throughout the south. The threat that rust will remain viable through the 2012 winter is real, but that s a real threat every year. The concern is the soybean disease is now confirmed across the widest swath of the U.S. we can remember, upping the odds that SBR could find a way to increase production costs for Southern soybean growers in the 2013 growing season. And with cotton and rice acres headed lower and southern corn and soybean acres acres headed up in 2013, SBR will find more willing host fields in the year ahead.

9 Crop Tour Australian wheat crop estimate up from November, but still down sharply from year-ago USDA in the December Supply & Demand Report increased its Australian wheat crop estimate 1 million metric tons (MMT) from November, to 22.0 MMT. That aligns the USDA estimate with the latest update from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). The increase, however, should not overshadow how the 2012 Australian wheat crop compares with year-ago when a record MMT of wheat was harvested. That leaves this year s wheat crop 26.5% below year-ago. This year s crop is also 19.7% below the 2010 Australian wheat harvest of MMT. Below-normal rains and tough season-long growing conditions are the reason. The soil moisture map shows how dry soils are as Australian wheat farmers move into the final stages of harvest. What the map doesn t show are the effects of recent rains in Western Australia (WA). There is some concern that rains on harvest-ready wheat might result in an uptick in feed-only wheat coming out of WA as harvest there begins to wind-down. Profarmer Grain Australia says the forecast calls for widespread rains in WA and in eastern production areas, with about 15% of the crop yet to be harvested. Australian wheat exports in are estimated at 17 MMT, down more than 30% from last year s MMT and down from MMT in Australian soil moisture as of Dec., 10, 2012 % of normal soil moisture 90%-100% 80%-90% 70%-80% 60%-70% 50%-60% 40%-50% 30%-40% 20%-30% 10%-20% 0%-10% No Data AUSTRALIA: Wheat production by shire Crop Tour page 9

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