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Corn, Soybeans Improve and Wheat Worsens
The corn and soybean crop continued to improve this past week, with the 6/16 crop conditions up 1% in G/E ratings for corn and only losing 1% in soybeans. However, the yield models of both corn (up 0.76 bu/acre to 163.6 bu vs. trend of only 159.4 bu/acre) and soybeans (+.28 bu/acre to 44.72 bu/acre, above trend of 44.02 bu/acre).
This suggests that the corn and soybean crop not only is above average yield potential at this critical point, but that the crop is also improving in yield potential such that with the right weather, we still have a possibility of a bumper crop in 2014! That means that it could be surprising how much prices can drop from here, as the market hasn't even discounted the projected carryout of 325 mb soybeans and 1.7 billion bu corn yet in its price discovery mechanism. Instead, there is a large premium still in new-crop prices for a crop problem to develop this summer.
The fact remains that it is basically June 20, and no crop problem has emerged for corn and soybeans. In fact, the perceived crop problem of late planting, which appeared to be true for the first five weeks of the planting season, disappeared fast for the next three weeks as rapid planting in ideal germination conditions (warm and wet) have meant we have an average emergence (corn) to an early emerging (soybean) crop coming in 2014. That is a huge change in the perception of the market, and so far prices haven't discounted the great start to this 2014 crop year. Soil moisture so far is adequate across the Corn Belt (even the typically dry western Corn Belt and HRW wheat area), where the recent rains have healed up any lingering effects of drought. Instead, now the corn/soybean crop has perhaps the best yield potential ever in the Corn Belt for 2014!
While corn and soybeans have had a nearly ideal start to 2014 (and a bumper crop is now likely), wheat production is likely to not hit trend yield levels for either winter wheat (already about 5% below trend yield potential) or HRS wheat (late planting usually means yield losses when planted in mid to late May). Winter wheat conditions are rated 30% G/E (unchanged from last week), and that is leaving the Pro Ag yield model at the lowest level of the year at 45.35 bu/acre, well below trend of 47.68 bu/acre and down another 0.20 bu/acre this week. Winter wheat conditions continued to decline due to the recent heavy rains in HRW wheat country during harvest. These rains are raising the yield potential of corn, soybeans, and sorghum in this region but are also having a detrimental impact overall on the ripening wheat. That means wheat is perhaps the most friendly of the big three grain commodities, although you wouldn't know it by looking at a price chart (a pronounced downtrend since early spring). Of course, we are in harvest of winter wheat, so it's difficult for prices to rise. But of the big three commodities, it's wheat that will have the best chance to rally postharvest as it's likely the U.S. wheat crop will be subpar in yields for 2014.
As we've said before, Pro Ag projects we have an above-average corn and soybean crop coming in fields, and even with trend yields we will have a projected 1.7 billion bu corn carryout and 330 mb soybean carryout. Based on this fact, Pro Ag projects corn to drop $1 or more from recent highs (already we've dropped 70c), and soybeans to drop $2 or more by harvest (here we've only dropped about 50c in new crop thus far). That's why we are 100% priced in 2014 and 2013 corn/soybeans.
Target $6.75 July Chicago wheat to advance wheat sales, but the wheat rally is unlikely to occur until wheat harvest is 70% complete. It also could be difficult for wheat to rally given the bumper corn/soybean crop on the way; if corn/bean prices continue to drop, it might be a victory for wheat prices to be just stable. But postharvest, there could be some decent price appreciation in wheat due to the fact that U.S. wheat supplies will likely be below normal trend yields. If there is a bullish commodity after a price drop into August or later this year, (October if corn/bean yield potential continues to improve through the summer), then wheat is the candidate.
Corn and soybeans could be a price dog of the grains throughout the year. If you will need to make corn/bean sales at harvest, soybeans are the best sale opportunity right now. (We would advise catch-up sales of multiple crop years of soybeans right now, the most attractive sale of the big three grains.)
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