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Rapidly improving crops bearish
Much attention has been focused on the planting progress for crops this spring as we fell behind normal planting progress on HRS wheat, corn, and soybeans due to our terrible spring (March and April were downright winter-like). However, as planting winds down, we are finding that the late planting progress is becoming less and less important, and the growing season more and more important for the supply/demand factors in the marketplace.
For example, we now are only 3% behind normal planting progress in soybeans as we continue to catch up to normal planting progress as we've gone through this spring. If only 3% of the soybeans suffer a yield loss - even one as significant as 10-bushels-per-acre yield loss - we still only have about a 20 million-bushel yield loss from trend yields. However, this week's 1% improvement in crop conditions in soybeans to 65% good/excellent is translated into a .28-bushel-per acre improvement in soybean yield potential (based on the Pro Ag soybean yield model). Across 77 million acres that translates to a 21 mb increase in yield potential for soybeans - more than making up for this spring's late planting progress in just one week of improvement! What happens if soybean conditions improve every week for the next 10 weeks? We could double the potential carryout with the kind of rapid improvements in yield potential that are currently occurring.
Corn is experiencing a similar hike in yield potential, with this week's crop conditions improving 1% to 65% G/E, the Pro Ag yield model rose 2.16 bushels per acre to 155.7 bushels per acre, or on 90 million harvested acres about 195 mb increase in yield potential in just one week! If we lost 3 million acres of planted corn due to the late planting across the Corn Belt this spring (which occurred over 10 weeks), that translates into 468 mb of lost production from the entire late planting scenario! Ironically, in just 2.5 weeks of good growing season weather we will more than make up for the late planting problems of this spring. So we are fast realizing that the growing season weather is becoming more and more important, and planting season progress numbers less and less important.
Even winter wheat - long considered by many bears to be beyond redemption from being a below-average crop in 2013 - has improved significantly in this week's yield model. While crop conditions improved just 1% to 32% G/E, the yield model for winter wheat improved a huge .53 bushels per acre this week to 44.9 bushels per acre. Across 44 million acres, that is about 23 million bushels of increased production this week that wasn't there last week - bearish indeed! One has to wonder whether winter wheat yields will be closer to average, especially considering the test weights of winter wheat and yields are surprisingly good considering the terrible crop ratings all year. And 60- to 62-pound wheat tends to yield better than expected, and that certainly seems to be the case as late season rains allowed winter wheat crops to fill nicely.
Pro Ag notes that HRS wheat conditions also improved this week to 70% G/E, up 2% from last week, which suggests that all of the major crops are improving in yield potential now. That is quite the change from last year at this time, when yield models were plummeting due to the onset of drought across the Midwest. This "ain't 2012," though, and with the rapid improvement in crop conditions due to wet/warm weather, it's likely 2013 will be more like 1994 or 2004 than 2013 - in other words, a potentially above-average yielding crop across all crops. With last year's drought over and soil moisture levels more than adequate across the entire country now, Pro Ag is looking at 2013 with a wary eye. Could this be the bin buster we've been waiting for the last few years? So far, that certainly looks possible!
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