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Soybean yield potential improving?
Soybean yield potential, as measured by Pro Ag yield models, has declined in each of the past weeks since early June.
That yield potential declined from a high of 42.6 bu/acre on June 11 to only 36.2 bu/acre on August 27. That equates to an astounding 6.4 bu/acre (or 480 million bushel) reduction in production prospects. That is basically three times the projected carryout we started with this year. It's also the reason for the sharply higher world market in oilseeds that we have experienced since mid-June. We had a need to allocate the short crop as the reduction in production the past 2.5 months was severe indeed!
But, for the first time in many weeks, the Pro Ag yield model expanded yesterday to 36.7 bu/acre, up 0.5 bu/acre from last week. THIS COULD SIGNIFY AN END TO THE 2012 SOYBEAN PRICE RALLY!
That price rally has taken soybeans from about $12.50, back in June, to a high of near $17.90 yesterday. That is a whopping $5.40 rally or 43% jump!
While it's possible USDA could cut soybean production one more time in the Sept. report (since Pro Ag yield models indicate a 1.5 bu/acre drop in soybean yields in August), Pro Ag senses that the worst of the 2012 crop projections may finally be out. Yes, we had a devastating drought in 2012 in the Corn Belt. As a result, we have projected corn yields by USDA a full 25% below 'trend' yields, and soybeans about 20% below trend yields.
These are crop disasters of major proportions.
But, prices have also rallied significantly, to the point that basically end users will need to ration corn and soybean supplies in the US in a dramatic way. But, isn't $8 corn and $18 soybeans a high enough price to allocate that shortage? Our history tells us that any corn price over $6 cuts demand significantly (2008). So, will 2012 be any different? If so, why?
If corn demand is cut significantly, the need to expand soybean acres in the US next year is also reduced as that frees up South American acreage for soybean expansion. In the past few weeks, soybean prices have gained on corn to the point where demand for soybean acreage is starting to improve. It's the soybean demand that seems most difficult to cut with higher prices. So, soybean supplies perhaps need to be adjusted upward, whereby in corn we can cut demand (especially in the US) by cutting both ethanol and feed demand significantly.
For feed demand, Pro Ag doubts that cattle feeders will continue to feed $8 corn. Instead, the virtually free supply of CRP hay from this summer will be tempting to use. Pro Ag understands that cattlemen have been wise to recognize the nearly free price of CRP hay for their use in 2012/13, and some believe cattlemen are rolling up just about everything they can get their hands on with balers in 2012. CRP hay, at virtually free prices, is their best choice in 2012. So, it might be surprising how little corn is fed.
Export demand for corn has also shrunk to near half last year's level, since prices went over $8. It might be surprising how low exports will be if prices stay in the stratosphere. Instead, prices could be allocating the short supply more than we think, right now.
Yes, the shocking news about the poor US corn and soybean crop in 2012 is becoming old news. And with commodity prices worldwide shrinking for most other commodities, it could be surprising how much corn and soybean prices could fall from current lofty levels. Once market participants can see us getting through the 2012/13 marketing year with some supplies left, it could be ugly in the marketplace for grains from here on out.
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