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Markets await field 'lie detectors'

Grain markets are eagerly anticipating harvest, when combines (or as Randy Martinson, my coworker, is calling them, "lie detectors") will go out into fields, and we will determine exactly how good or poor this crop is.  

For the past month after USDA's low-yield-potential August report was out, there has been a lot of conjecture about just how poorly the crop is, especially soybeans. However, Pro Ag yield models based on crop ratings are still showing a decent crop is growing in fields, with soybeans at 'trend' after three weeks of rapid declines in yield potential, with corn above 'trend' after two weeks of more moderate declines.  Early harvest yield results for corn are also encouraging, with some large crops reported in Southern areas (200+ bu/acre dryland where it was 50 bu/acre last year)!

Crop conditions Monday afternoon 9/9/13 showed the corn and soybean crop declined another 2% each in rated G/E, with soybeans now down to 52% rated G/E and corn down to 54% G/E - still way above last year's dismal rating.  

The Pro Ag yield models also declined, with corn a small decline of 1.3 bu/acre to 161.1 bu/acre, still above trend of 157.4 bu/acre, but a decline nonetheless. Soybean yield potential declined a little more percentage wise, down 0.4 bu/acre to 43.6 bu/acre, right at trend yields for soybeans. However, the yield decline is slowing as the crop reaches maturity, and it's still well above USDA's last month number of 42.6 bu/acre, and most of the trade is trading a number of 41 bu/acre or lower.  

Maturity is advancing slowly (which is a good sign that the flash drought is not pushing maturity much), with corn dough now at 92% (vs. 94% average), and 64% dented vs. 75% average, and 9% mature vs. 28% average. Soybeans are 97% setting pods vs. 98% average, with 11% dropping leaves vs. 19% average. We are probably no more than one week behind normal development for the crop as a whole, and we have warm conditions forecast for the next two weeks that will take much of the crop to maturity. That is bearish! Especially as we approach harvest and harvest sales.  

Cotton is rated 45% G/E, same as last week and 4% above last year; sorghum rated 54% G/E, unchanged and up from last year's 24% rating. Crop progress for sorghum is about average. Rice is rated 71% G/E, above last year's 66% rating. Barley is 89% harvested, ahead of average pace of 82% while HRS wheat is 80% harvested, also now ahead of normal of only 79% harvested. The HRS wheat yields continue to surprise people on the high side, with a bumper crop in 2013 in both Canada and the U.S. Winter wheat is 5% planted - right on the five-year average.  

Overall, we have a crop that is average or above average in the U.S., and the market is trading a crop that is much worse than the current crop ratings suggest.  

As we stated before, the market must decide whether or not soybean price rises into the stratosphere recently are enough to take into consideration the rapid decline in yield potential we've suffered the last three weeks. As we inch closer to harvest, it might be more difficult for soybeans to continue to rally, especially if Pro Ag's suspicion that harvest yields might be better than expected in corn and soybeans is correct. Expectations are just so low in this crop year relative to crop ratings that we think prices have already built into them the crop damage that is occurring late.   

Pro Ag remains bearish, Final Pro Ag downside price targets are still $4 Dec. corn, $9.50 to $10 Nov. soybeans, and $6 CBOT wheat, but it may take longer for soybeans to reach these levels (and they may need to be raised for soybeans if the crop continues to deteriorate into harvest).  We note however, that the soybean/corn price ratio is at an all-time high (3.0), so if corn prices sag into harvest, soybeans will likely as well.  


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