Record-high yield models and bullish reports
The 2013 crop continues to improve in yield potential, with the corn and soybean crops now suggesting their highest yield rating of the year this week, and in an ominous sign for prices, RECORD-HIGH levels. This is in sharp contrast to USDA projections in August released yesterday, which LOWERED the yield potential for corn and soybeans both 2 bu/acre (a large reduction in soybeans!) from July. However, the Pro Ag yield models are up 7 bu/acre in corn from July 1, and up 1 bu/acre in soybeans. What gives?
Some are suggesting that USDA wants to keep prices up to prevent large loss payments from crop insurance. If they keep yields elevated through October from actual yield potential, maybe they can prevent some of the large crop insurance indemnities. Or maybe, due to the late crop development, USDA methods are missing part of the yield potential of this crop. Or perhaps USDA is projecting an early frost? Regardless, this ill-advised USDA report is not worth the paper it's printed on, and should not be relied on to get bullish grains at a very ill-conceived time. In fact, weather forecasts are now suggesting warming temps for northern growing areas, along with rain in the central and northern Corn Belt for the 8 to 14-day forecast - just what is needed to produce a record-shattering crop in 2013.
Pro Ag yield models from crop conditions continued to improve yesterday, and now reflect record-high yield potential of both corn (165 bu/acre, up 1 bu/acre this week) and soybeans (44.83 bu/acre, up .24 bu/acre this week). So the reduction by USDA was ill-advised, as the yield model since July 1 has risen 7 bu/acre in corn and 1 bu/acre in soybeans! I can't for the life of me figure out where USDA numbers are coming from, unless you believe that USDA is trying to prevent prices from deteriorating enough to trigger losses in crop insurance in all crops.
For if USDA can keep prices up until October given record-large yield potential, then maybe they can reduce these payments? Trouble is, though, most funds also know the true yield potential, so there will just be more money made on the downside from anyone who believes these USDA projections. The only way USDA will be even close is with a very early frost, and the forecasts now are suggesting warming weather in the extended forecast (8 to 14-day and 6 to 10-day for northern areas). The extended forecast also features wet conditions for the northern corn belt in the 8-14 day forecast as well (bearish).
Regardless of the ill-advised USDA cut in yields, this has given us the opportunity to reestablish short positions in soybeans (at $12.25 Nov. beans) and will likely in corn (at 4.80-$4.90 Dec). Corn should rally further to near $4.90 on the large upside reversal from yesterday, so this should provide us an opportunity to get short if not already in place on earlier recommendations. Soybeans even have a chance of rallying to $12.60 before running into overhead resistance, but these are great prices to get short again.