Market not trading higher yields
The rest of the trade continues to try to figure out why prices are cascading lower in corn and soybeans, and dragging wheat down along with them.
But to Pro Ag, it is clear (and has been for weeks) that the reason for the lower prices are the much better than expected yields experienced by most of the northern Corn Belt and many parts of the central Corn Belt, where yields are much larger than expected.
As harvest has advanced, it is becoming more and more apparent that while the 2012 year will be a below average production year, and well below 'trend' yields, we are no where near as poor a crop as USDA is currently carrying on the books.
USDA yields in September were dropped to 122.8 bu/acre corn and 35.3 bu/acre soybeans, but Pro Ag yield estimates are currently at 131 bu/acre corn and 38.7 bu/acre soybeans - well above USDA's numbers. The surprisingly large harvest yields - much better than expected - are the reason Pro Ag has hiked our yield projections so much from USDA's low numbers.
Farmers in northern Corn Belt states have been finding yields shockingly large relative to expectations. In fact, ND and many MN farmers are harvesting record large farm yields in 2012 - a far cry from the widespread expectation of a below average crop right into harvest. But, as farmers harvested their first field, it was apparent that expectations were much too low for this crop - subsoil moisture clearly made a lot of difference in crop yield potential.
The smattering of rain received at key times as well as subsoil moisture (which was full this April at the start of the season) made all the difference in the world! Also, cool temperatures the first 2 weeks of August across the US and Corn Belt were also critical in abating the drought impacts - allowing soybeans in particular to produce much better yields than expected.
Readers of this column might be tired of reading about the larger than expected yields, and their impact on prices as projected by Pro Ag (harvest lows expected at $6 Dec corn and $14 Nov. soybeans). After all, we've been writing the same thing the past 3 weeks! But, until the market understands the importance of this one fundamental, it will continue to influence the market. So, until USDA numbers and private numbers from all sources are at 131 bu/acre corn or higher, and 38.7 bu/acre soy yields or higher - then the higher than expected yields are not built into the market yet.
So, until this important fundamental is incorporated into prices, there is no other item that will overcome this important statistic. After all, a 9 bu/acre improvement in corn yields means 810 mb extra production, and a 3.4 bu/acre improvement in soybean yields amount to about 250 mb larger soybean production. Also, another 3 million acres have been planted in the United States, so these acres and their production also need to be incorporated into the supply/demand picture in order for prices to stop retreating.