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 Corn Belt.
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, IND, MI).
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.
The 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.