Spring crops going backward, top in jeopardy?
Last week we indicated a potential top had occurred in all commodities including wheat, gold, silver, and crude oil.
This week we've seen big price declines in all of these commodities, led by the huge 8% drop in gold and silver on Tuesday (perhaps the largest one-day decline ever in any commodity?). It has become clear that most, if not all, of these commodities have indeed hit their price tops.
As yield potential of both crops declined last week for the first time since the start of the season, there are signs that these tops are not occurring in the row crops (corn and soybeans).
In fact, all spring-planted crops (HRS wheat/corn/soybeans) experienced moderate to large yield potential declines from the previous week. So the question remains, does the top in other commodities mean corn/soybeans have also topped? Below are some compelling reasons why this may not be true, including a HRS wheat/soybean crop that are both now rated as having below average yield potential in spite of an excellent start to the crop.
Corn yield estimates dropped over 1 bu/acre from last week to now be estimated at 151.2 bushels. Corn conditions dropped 1% in the G/E category from last week's 71% (vs. 67% last year at this time). This model is still higher though than the USDA's projected yield of 149 bu/acre and last year's yield of 147.9 bu/acre, but with current declines we are erasing all of the benefit from early planted crops. With dry weather forecast this week, its likely corn will be looking at an average crop (and still declining due to lack of soil moisture).
Soybeans also dropped a huge 0.55 bu/acre in this week's model. This week's yield estimate is 41.26 bu/acre vs. 'trend' of 41.3 bu and USDA's current 40.7 bu estimate. Surprisingly, we now have a below-average soybean crop in spite of the early planting as warm/dry conditions continue to sap soil moisture out of the Corn Belt. This trend of rapidly dropping yield potential is concerning, as the drying soil will be less capable of providing the high moisture demands the soybean crop will need during reproduction.
Spring wheat dropped this week, but only slightly at 0.2 bu/acre. This left the projected yield at 37.5 bu/acre, now down considerably from just 2 weeks ago. The model prediction is down almost 0.5 bu/acre compared to last year's yield and is now a below 'trend' yield for 2006 (a below 'average' crop). In the good/excellent category, the model showed deterioration, dropping by 2% to 67% in the G/E category (vs. 81% last year at this time). This is also concerning, as the direction of the crop is going backwards rather fast in the western HRS wheat growing region as the heat/dry weather is taking its toll. Since HRS wheat is just coming into the heading/reproductive stage of development, it's critical that rains fall to maintain even an 'average' crop.
Unlike the spring crops, this week's winter wheat rose by 0.7 bu/acre to 42 bu/acre. With the G/E category rising by 2%, this is still down from the trend or average yield of 45.7bu/acre. The improving potential of winter wheat with last week's rains offsets the bullish news of the declining HRS wheat crop.