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Analyst: Yields imply larger crop

Yields of corn and soybeans continue to surprise on the high side, a pleasant surprise for farmers who endured a month of warm/dry weather from mid-August to mid-September. Since then, it has been on the wet side for the U.S., especially the western Midwest, which needed rain to help germinate winter wheat crops that are currently being planted. However, in some areas we've gotten as much as 8" or more since mid-September, making it difficult for harvest conditions. The drought is over!

There is a dearth of new information, however, as the government continues in shutdown for the second week, with no crop progress, condition, weekly export sales or shipments, or monthly crop reports (including the October report that was virtually missed and cannot likely be made up). Private estimates of harvest progress are from 25% to 35% harvested corn and 40% to 45% harvested soybeans, but these are just guesses (and not as educated as USDA estimates). There are some wild guesses on export sales and shipments, but more important this time of year are the actual harvest yields of crops, as they will influence carryout much more than demand estimates.  

So far, harvest results have shown a better to much better than expected soybean crop. In some cases, farmers who expected 30 bushels are getting 40 to 45 bushels per acre, about 40% more bushels than expected! If that were the case all over the Corn Belt, yields would need to rise 2 bu or more per acre! However, some areas in eastern IA into IL received only about 50% to 75% of normal precip this summer during key times, and this area will have disappointing yields. However, this seems to be limited to this small area. Corn yields have for the most part been as expected or slightly better than expected, with some areas reporting much better yields than expected. If Pro Ag were betting, though, we'd expect soybean yields to be hiked more than corn yields in future USDA reports (if they ever get back to work).  

The actual yield is perhaps the most important statistic to be learned this fall, as both corn and soybeans are likely to produce average to slightly above-average trend yields in 2013 despite some dry periods at times during the year (especially late in the year). However, the same weather that produced crop stress late in the year also accelerated crop development such that we were not as susceptible to frost damage by fall. Also, the late fall and warm weather into late-October allowed even very late-planted crops to creep toward maturity. It's likely that there will be very little crop loss from frost in mid-October in spite of very late-planted crop in some cases in 2013.  

Looking at weekly and monthly charts is also concerning, as both corn and soybean charts are pointing lower, with new recent lows in both weekly charts and the trend still headed lower. There will be some support at $4.25 Dec corn on weekly charts, but if that falls, we may see prices dip as low as $3.20 (although it could be a long, slow grind lower to this level as there are support areas between $3.20 and $4.25). Soybeans also have support all the way down at $11-$11.10. This too could be a rapid price decline initially, and once we hit $11.10, the price decline could slow or halt. But some price pressure could occur all the way down to sub-$10 areas. One thing is for certain - the grains are in some trouble for bulls, as the bull market in grains looks like it has run its course. The next question is, what is next?

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