Soybeans gaining on corn
The 2007 crop so far has gotten off to a great start, with most crops planted ahead of average progress and in pretty good condition. In winter wheat, it's not just a start, but is getting close to a finish as harvest has begun in the southern areas of the wheat belt. So far, the harvest numbers are impressive.
Progressive Ag yield models suggest we currently have a record large winter wheat crop developing in the fields, with our yield estimate at 48.3 bu/acre, nearly 5 bu/acre larger than the USDA May report. In fact, our yield model suggests the odds of USDA being right on their 43.5 bu/acre low yield is less than 5%, as crop conditions of winter wheat just keep improving as we move closer to harvest. Pro Ag would suggest that this yield will need to rise 10% or more by the final Jan report.
While winter wheat is only a few weeks away from grain bins, corn is just getting started. But so far, US farmers rate the crop at the second best on record. Pro Ag estimates the corn yield potential at over 156 bu/acre, well above USDA's ill conceived below trend yield by almost 5 bu/acre, and also above trend. In talking to growers and looking at weather forecasts, we don't expect the crop conditions to drop the coming week, but instead to improve (just like winter wheat). In fact, if current forecasts of warm/wet weather are correct for the next 2 weeks, it's likely the crop could improve significantly which would mean even higher yield estimates as we enter critical summer periods.
While the market seems to be holding prices on what many analysts say is a likely 'weather scare' this summer sometime, it's looking more and more like this tried and true marketing plan could be in great error in 2007. Pro Ag notes there are years where crop conditions start out well, and just keep getting better as weather remains ideal most of the summer-not an unprecedented event. The best examples include the record shattering years of 1994 and 2004-both year's where trend yields were shattered by up to 10% higher yields. Some market analysts continue to point out that if corn yields drop just 5% below trend (or about 8 bu/acre), then carryout projections will be only 300 mb and prices would need to go to $5. But what if yields rise by 5% or more? Carryout projections from a 5% higher yield (which might be a low estimate based on the 2007 crop start) go up to 1.5 billion bushels, which could take prices below $3 at harvest. Actually, based on our excellent start the odds favor this event happening much more than the below trend scenario!
Pro Ag is concerned that growers are focusing on the wrong possibility at this point, staying bullish corn on the memory of the dramatic rally last fall/winter-while there are plenty of signs that the rally ended in February. 1) Technical trends turned negative in March, with a well established downtrend in corn today. 2) The 2007 crop was planted early, and is developing early in corn, soybeans, HRS wheat, barley, and most other crops. With better than normal soil moisture levels, this favors an above average crop. 3) Current crop conditions are above to well above average in almost every crop, suggesting we already have signs of a bumper potential crop in 2007. 4) Odds favor a record large winter wheat crop in 2007, while even USDA is in a state of denial over just how good the 2007 crop actually is. So while the whole world is primed for a 'weather scare' this summer sometime, actual signs indicate weather is mostly ideal for bringing in bumper 2007 crops.