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Crop Improvements Bad News for Market Bulls

Ray Grabanski 07/08/2014 @ 8:07am President, Progressive Ag www.progressiveag.com

There is more bad news for market bulls this week as the crop not only continued to improve in yield potential this week, but it also accelerated its improvement such that yield potential is now jumping rapidly! Furthermore, weather forecasts are perfect for the reproductive stage of development, with the next two weeks forecast to have mostly normal to below-normal temps and normal/above-normal precipitation. That means that yield potential of corn and soybean crops will continue to jump rapidly, meaning more projected carryout and thus, lower prices are likely ahead. 

Specifically, corn yield potential rose 2.21 bu/acre last week to the highest level of the year, 166.17 bu/acre this week. That means another 180 mb of carryout for corn, worth another 8c decline in national average prices due to the rapid improvement in yield potential last week.  

Soybean yield potential also jumped last week by 0.36 bu/acre, its largest hike this year, to 45.29 bu/acre.  That is another 30 mb carryout hike from last week's excellent growing season weather, and it means we are approaching 500 mb potential carryout in soybeans.  Even wheat yield potential rose last week, with winter wheat yield models jumping another 0.33 bu/acre to 46.09 bu/acre (although we are losing reliability in winter wheat yield models as data points drop out as harvest nears completion). It's likely that last yield model estimate for winter wheat as harvest is nearing completion with 57% harvested vs. 60% normal.  

Crops across the board are improving in crop ratings.  While corn conditions along with soybean conditions were steady last week at 75% G/E corn and 72% G/E soybeans, other crops are showing improvement at a time when conditions typically drop this time of year. Specifically, cotton conditions improved 2% this week to 55% G/E; sorghum improved 2% to 61% G/E; rice improved 1% to 70% G/E, and winter wheat improved 1% to 31% G/E. Other crop conditions were steady during a time frame when crop conditions typically drop due to the 'damping off' effect this time of year. Oats (64% G/E), HRS wheat (70% G/E), and barley (68% G/E) all were steady this week, which also likely translates into more yield potential this week. Overall, the improvements in yield potential translates into higher yields and lower prices for these crops. It appears that 2014 will go down as a bumper crop year in the U.S. for most major crops, meaning prices will likely continue lower as the summer wanes on and harvest approaches.  

Crop development is also about on par with average, with some crops ahead of normal (soys, barley, sunflowers, rice, peanuts) and some crops behind normal (corn, cotton, sorghum, oats).  Specifically, cotton is 53% squaring vs. 60% normally and 12% setting bolls vs. 16% normally. Corn is 15% silking vs. 18% normally, with soybeans 98% emerged vs. 97% normally and 24% blooming vs. 21% normally.  Sunflowers are 98% planted vs. 97% normally, with sorghum 23% headed vs. 26% normally.  Peanuts are 44% pegging vs. 39% normally, with rice 17% headed vs. 14% normally. Oats is 80% headed vs. 83% normally, with HRS wheat 47% headed (equal to normal) and barley 61% headed vs. 44% normally. Overall, crop development looks about normal in spite of a very late planting season overall as heat and sunshine since mid-May are keeping the crop developing on time.  

Weather is getting more and more favorable, with some wet areas finally drying out a bit this week and rain falling in some drier areas.  The next two weeks are forecast to be mostly cool and wet, leaving perfect weather for pollination of corn and blooming of soybeans to advance. We could hardly ask for more perfect weather this time of year, so it;s likely the crop will continue to improve in yield potential - just like the past week, which saw the best improvement so far this year!

As we've said before, Pro Ag remains bearish as the crop (corn and soybeans) is improving steadily in yield potential each week, reflecting the adage that 'rain makes grain.'  We will have a buildup of stocks to at least 1.8 billion bushels corn and 450 mb soybeans given a trend yield and current planted acreage, with the number rising 180 mb last week in corn and 30 mb soybeans due to improvements in crop yield potential.  Pro Ag remains bearish grains, especially corn and soybeans, as we enter the critical reproductive stage for crop development.


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