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New-crop math and basis ramifications

Agriculture.com Staff 09/11/2008 @ 9:43am

Time to sharpen up your pencils and get ready for the next round of crop numbers to be released by USDA on Friday. Most analysts seem to expect moderate changes to corn and soybean numbers. Collectively, analysts look for 2008-2009 corn ending stocks to fall from 1,133 million bushels to 1,032 million bushels between the August and September USDA reports, while soybean numbers are projected to rise marginally from 135 million bushels to 138 million bushels. However, some crop forecasts of late may seem contrary to these projections.

Planalytics (www.Planalytics.com), a business weather intelligence firm, utilizes satellite imagery data and has been making crop yield projections since 2002. In general, they tend to be "better forecasters," in terms of lower forecasting errors, then USDA's projections in August. So, watching what they say about crop conditions may provide some useful insights about the actual crop size.

Their latest forecast numbers released yesterday suggest a strong departure from USDA's forecasts. In corn, they project a national yield of 160 bushels per acre versus USDA's forecast of 155, while in soybeans Planalytics places their estimate at 46 bushels per acre versus 40.5 from USDA. Below is a snapshot of some of the key state production numbers and how they compare to 2007.

The upshot is if you buy into these numbers then you probably need to be strong sellers of grain in the near-term. Soybeans in particular show a much large change in production than most in the trade are forecasting. Corn as well, while lower than last years total, still has some added cushion to help increase carryout stocks.

At a regional level, strong shifts in production will also impact basis levels. Most of the Southern tier states have large increases in soybean production in comparison to last year. Tennessee and Kentucky, are projected to more than double their soybean production in 2008 versus 2007, which will likely put a hamper on basis levels.

Indeed, comparing new-crop basis for fall delivery in 2008 to what the basis was in 2007 at harvest, we can start to see these shifts occurring. Soybean basis for fall delivery is trading at a 20-cent discount in Southern states compared to what it was in 2007 at harvest. As you get more into the Upper Midwest and Northern plains, where soybean production is projected to be on par or in some cases even lower than 2007, basis levels are not as discounted relative to last year.

For corn, weakness is less pronounced, and areas like Iowa and South Dakota are holding fairly close to last year's levels.

Overall, look for a weaker basis at harvest and with higher costs of storage and forward carry rewards limited, this could put even more pressure on basis this harvest season.

Time to sharpen up your pencils and get ready for the next round of crop numbers to be released by USDA on Friday. Most analysts seem to expect moderate changes to corn and soybean numbers. Collectively, analysts look for 2008-2009 corn ending stocks to fall from 1,133 million bushels to 1,032 million bushels between the August and September USDA reports, while soybean numbers are projected to rise marginally from 135 million bushels to 138 million bushels. However, some crop forecasts of late may seem contrary to these projections.

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