Farm markets reach for the stars
The devastating 2012 drought continues, with the Pro Ag yield model declining again in soybeans this week, but stabilizing in corn.
Still, we are at much lower levels for yields than USDA in their last report. Our Pro Ag corn yield model suggests a 134 bu/acre corn crop, exactly equal to Informa's best wild guess as well (are they simply using the yield formula to project yields?). This is well below the July USDA projection of 146 bu/acre, and will result in further drastic reductions in demand due to the extremely high price (and $8 corn is an extremely high price!).
Soybean yields have also been severely reduced, with the Pro Ag yield this week dropping to less than 38 bu/acre, now a full 2.5 bu/acre below the July USDA projection of 40.5 bu/acre. This is essentially a loss of more than our projected carryout of only 135 mb in July! The 200 mb lost in the month of July will result in severe rationing of soybeans; but since it is food demand, it may take an extraordinary price for the market to allocate that shortage. Could beans run to the all-time commodity price high for grains of $24, marked by the HRS wheat price in 2008).
It's quite clear from crop condition ratings and the current continued warm/dry weather forecast that markets will probably continue to go higher - even though they are already testing all-time highs in corn and soybeans (and in fact, have already broken above these levels a few times this past few weeks already).
As far as crop condition specifics from Monday, July 30, the corn conditions declined to 24% G/E, down 2% from last week with the P/VP category moving to 48%, up 3% from last week. However, the Pro Ag yield model has stabilized at 134.3 bu/acre, actually UP 0.76 bu/acre. So, it appears the corn has already suffered its damage for the year. The corn actually saw a yield increase, as apparently it typically declines at this time of year for condition ratings, and the yield model is simply becoming more stable as the corn reaches into maturity.
Soybeans, on the other hand, still are making their yield determinations as they are podding and blooming yet. That isn't good for soybeans, as the crop conditions declined another 2% to only 29% G/E, with the 2% moving all the way to the very poor category (up 2% to 15%). That dropped the soybean yield model another 0.33 bu/acre, now down to 37.98 bu/acre and still declining. That should support soybeans, even though the yield models this week will not support further corn price rallies.
It may be that soybeans continue to gain on corn as the hot/dry weather forecast mostly continues. The next 2 days will bring rain around the Corn Belt, but virtually no significant precip into the heart of the Corn Belt including IA, ILL, IND, and OH. So, the crop yield potential should continue to decline. In the 8-14 day forecast, more rain was put into the central Corn Belt early this week, but by Wednesday was once again removed from the forecast. Remember, these forecasts change 2x/day - and recently it has always changed to the dry/warmer side. So for now, the rally continues but it may be led by soybeans, not corn, in the coming few weeks.