Is the 2006 crop failing?
As we move into the end of July, the 2006 crop is coming into better focus as the final stretch for crops approaches. Currently, the 2006 sorghum, oats, HRS wheat, and almost every other major crop is well below last year's crop rating as of Monday. The exception to that list is corn, where crop ratings are still higher than last year's dismal July rating (recall the ILL drought?).
But with the current weather forecast of more hot and dry weather for the western Corn Belt, late July and early August couldn't be more different than last year. Recall that while the 2005 July/August weather was ideal (it produced record shattering soybean yields), this year's forecast is much different with perhaps our worst bout of heat of the year forecast to hit the western Corn Belt the next 7 days. With little soil moisture left to draw from, crops will quickly go backwards and lose yield potential rapidly.
Basically the 2006 crop is failing, and the signs are present everywhere you look (crop ratings, weather data, forecasts, and livestock feeding rates as they move off pasture). Given the current state of affairs, it's surprising that corn/beans haven't run to new highs. Is the memory of the 2005 drought (and the ending of that drought in late July) keeping buyers away from the market?
Lets look in more detail at the current facts. Corn and beans both declined 3% in the good/exc category Monday (rapidly declining crops), much more than the trade expected (many thought conditions would improve). Pro Ag yield models declined to the lowest levels of the year, with corn at 147 bu/acre (down 2 bu from last week) and soybeans at 40.1 bu/acre (down a huge .7 bu/acre from last week). This should support corn as it means +8c on the national average yearly corn price and +20/+40c in the national average soybean price. If the weather forecast stays warm/dry for the western Corn Belt, this should propel corn/bean futures to new highs in the near future. That would be $2.86 Dec corn (+30c) and $6.50 beans (+45c) if it occurred, so it's a big statement to say the crop is at its worst yield estimate of the year. This is about the time that 2003 crops started to suffer from hot/dry conditions, so it's the soybeans that we know can be most adversely affected yet in 2006.
HRS wheat conditions remained steady in the G/E category, and actually improved a little in the p/vp category. With the start of harvest that might be indicating higher than expected yields. Still, Pro Ag yield models rose 0.2 bu/acre, the first rise in many weeks. It'll be interesting to hear yield reports coming out of the early harvest results. The light soil so far is yielding 30-50% of last year's crop yield, but the heavier soil is running nearly equal to an average crop (better water holding capacity in the fine soils). With many areas still recording less than .5" of rain in July and less than 1.5" in June/July, it's no wonder that crops are stressed. If this continues, row crops (corn/soybeans) might have even worse yield losses than HRS wheat in the Dakota's, NE, CO, KS, OK, and MO.