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A gift horse? New low prices, but crop still below average
Corn and Soybean prices dipped near to or at new lows this week due to improved
rainfall and reduced temperatures across the Midwest, especially in the western
Soybeans dropped to new lows, triggering technical selling, as funds
get even more short the soybean market. Yet surprisingly, Pro Ag yield models
still suggest a soybean and corn crop that is below average (albeit improving
this week), and in fact the lowest yield estimate of the season for HRS wheat
and the third lowest of the season for corn/soybeans.
Crop conditions Monday were little changed from last week, with corn and HRS
wheat conditions unchanged and soybeans up 1% in the G/E category. Pro Ag
corresponding yield models indicated a hike in corn yield potential of 1.7
bu/acre and soybeans of 0.3 bu/acre, while HRS wheat yield potential was
slightly lower. The rainfall in the parched western Corn Belt last week
combined with warm/dry weather in the soggy eastern belt combined to improve
yield potential nationally. This in spite of below average precip nationwide
and many dry pockets remaining in the corn belt, as the rainfall hit the areas
most in need of rain (bullseye rains!) and avoided the already wet areas (OH,
Currently, Pro Ag yield models suggest a 147.2 bu/acre corn yield potential
nationally vs. USDA July at 149 and trend yield at 149.5. Basically, we still
have a slightly below average corn crop nationally. Soybean yield models
suggest a 40.25 bu/acre crop vs. 'trend' of 41.3 bu and USDA's July estimate at
40.7 bu/acre. Based on these numbers, USDA will make little change in the
August report, with it likely if they do decide to make changes, they will be
small drops in yield potential. HRS wheat yield models dropped below 30 bu for
the first time this year at 29.99 bu/acre vs. 30.05 last week, USDA July at 32.9
bu and 'trend' yields at 38.24 bu/acre. We still have a disaster HRS wheat
crop, with USDA likely to reduce further the projected HRS wheat crop.
However, early harvest yield results in the eastern HRS wheat belt suggest
better than expected yields, with 40-60 bu/acre wheat common in this highly
productive region. Most of the HRS wheat bushels will come from this area,
where soils are heavier, temps usually cooler and rainfall more plentiful.
drought of 2006 simply reduced disease pressure in this area, leaving one of the
better crops of the last decade in spite of warm/dry conditions on the better
soil (with high water holding capacity). Crops lived on stored soil moisture,
which was at full capacity this spring. Yet, that leaves one wondering about
next year, as all the stored soil moisture is now about gone (in both the
southern and northern Plains).
Its almost as if the market thinks 2006 is going to be another 2005, with
rapidly improving crops and the possibility of another record large soybean
crop. But 2006 doesn't look much at all like 2005 at this point, with rainfall
amounts still below average almost weekly across the US. And temps, although
cooler than last week, are still above average. That doesn't sound like weather
that will produce record soybean yield to us.
Pro Ag wonders openly about the market wisdom of pressuring corn/soybeans to new
lows in this atmosphere, especially with crude oil holding above $75 for almost
12 months, with corresponding huge profits producing ethanol from corn and
biodiesel from soybeans.
Pro Ag estimates that biodiesel demand is already
larger than the USDA projection for the entire 2006/07 year, with a likely hike
in this demand in projections most of the 2006/07 year. Ethanol plant
construction has not only maintained its pace, but exceeded it as Wall Street
strives to get involved in the best investment in the US the past 5 years. Pro
Ag guarantees that $75 crude oil prices the past year haven't worsened that
It seems as if the market is offering an opportunity to all the producers that
have sold grain they are not likely to produce in August. With profits in
almost all sales this spring/summer, is it foolish to look this gift horse in
Corn and Soybean prices dipped near to or at new lows this week due to improved rainfall and reduced temperatures across the Midwest, especially in the western Corn Belt.