In the last two weeks, US crop yields have stabilized in models near 38 bu/acre, for soybeans, and 134 bu/acre, for corn. This is a surprising result, considering how little moisture has fallen the past two weeks. But stabilize they have, and yet all the past two weeks the forecast has remained for more hot/dry weather to continue. However, Pro Ag notes that in the last five days that forecast has turned from hot/dry to one that is cool and relatively wet for the Corn Belt. That is especially true for the 8-14 day forecast, which turned over the last 5 days from one calling for hot/dry weather to one calling for cool and relatively wet weather (at least the wettest all summer). Pro Ag detects a change in the weather pattern, and it couldn't have come at a more critical time for soybeans than now (except perhaps a week ago).
This could have huge repercussions for the markets, including corn, soybeans, and wheat markets. If the US soybean crop can recover 2 bu/acre of yield potential by perfect weather from here on out into harvest, it takes a great deal of pressure off the world's farmers to produce more crop production to meet demand. IF South America can produce more corn instead of soybeans to meet the world's demand from March 2013 to Dec.2013, that will buy the world time for another summer crop to be produced to replenish the worlds supplies.
Yes, you are reading this article right if you detect a more bearish tint to the Pro Ag market outlook. Recall that we turned bullish in mid-June, when prices were still $5.10 Dec12 corn! Now, prices have rallied 60% since that time, and the whole world has turned more bullish, with talk of $10 corn and $20 soybeans, amidst the market analysts of the world.
That may have been possible had the hot/dry weather of July continued into August and adversely affected the soybean crop into harvest. But, that is not occurring (at least it appears to have changed with the weather forecast), and that is a huge change in the dynamics of the world market.
Instead, Pro Ag foresees a potential top in the markets, with both corn and soybeans running to new highs in the past few weeks, and then failing to hold those new high price levels. Yes, we have gone high enough in price to allocate the short supply, and now that weather has improved in time to salvage some soybean yield potential, the market perception might also shift from one of shortage to one of more plentiful supplies. In fact, the USDA report Friday (which surely will cut production estimates of corn and soybeans drastically) could mark the turn in the market lower. Could we start out the day higher, and then reverse lower to form a downside reversal?
Pro Ag is amazed at what markets can accomplish, and look at what we've done from mid-June to now!!! Corn prices have rallied to $8(new all time highs!!!), and soybeans to over $17!!! The market has also attracted more production acres into the world, a sign that markets indeed to work (SAM expects 8% more planted acreage in 2013, and the US has planted 23 million more acres since 2008 (a fact the Environmental Working Group cites as a bad thing).