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Soybean yields 'shockingly large'
So far, soybean harvest yields are shockingly large compared to expectations. In many cases, soybeans on good ground are yielding 50% more than expected prior to harvest, leaving farmers to scratch their heads and ask "Where did this yield come from?" But the yield is there, plain as day, in their combine hoppers and hauled out in trucks, field by field. So there is no denying that yields are much better than expected.
For many ND and MN farmers, record high farm yields are being reported, meaning they are much larger than expected. The northern corn belt is the earliest harvested area for soybeans, and that seems to be where the best yields are. Contrast that with corn, where southern areas are most advanced in harvest in the early stages (and early southern yields were somewhat disappointing). However, as corn harvest has advanced, the yields have gotten better and in northern areas, they are much better than expected.
Even Central Corn Belt corn yields are being reported better than expected, with the poor ground yielding about as expected (very poor), but the better ground yielding much better than expected which is leaving farmers once again to scratch their heads and ask, "Where did this come from?"
Analysts and eventually USDA, will need to quickly revise their yield estimates up significantly as the reality is that the US drought has less effect on crops than many thought possible. Instead of yields 25% or larger below trend, the corn yield might end up closer to 15% below trend, with Pro Ag yield estimates raised to 135 bu/acre in corn (up 12 bu/acre or about 1 billion bushels), and soybean estimates up to 38.7 bu/acre (up about 3.4 bu/acre or about 250 mb over USDA estimates).
In crop condition ratings Monday, Sept. 17 we got further confirmation that farmers yields are larger than expected with the corn condition rating up 2% in the weekly report to 24% G/E, and soybeans up 1% to 33% rated G/E. We lost the data year 1988 (the last poor yield in the US) this week as over 50% of the crop was already harvested in 1988 at this time, so the corn yield model is becoming less predictable about the crop. But the soybean yield model rose another 0.1 bu/acre to 37.3 bu/acre, now a full 2 bu/acre above the USDA estimate.
A few statistics to consider based on the yield model. There is 50% chance that yields are higher than 37.3 soybeans bu/acre, and only a 9% chance that yields are as poor as USDA current projections. Put another way, there is a 9% chance that the yields are as large as 39.5 bu/acre as well! With harvest yields much larger than expected, Pro Ag would lean towards a final yield around 38.7 bu/acre right now.
Pro Ag corn yield models are currently at around 134 bu/acre. There is a 50% chance they can be larger than 134 bu/acre, and only a 8% chance they are as low as USDA's current 122.8 bu/acre. Similarly, there is an 8% chance they are as large as 140 bu/acre. With harvest yields coming in better than expected (but not as large as soybeans), Pro Ag's current yield projection is 134-135 bu/acre.
Technically, charts of both corn and soybeans have broken down into downtrends, with soybeans now below the 2008 highs as well as corn. Its likely we will see some resistance marks hit in the near term, but if the current resistance falls, corn could fall to under $6 and soybeans to $14 fairly quickly.
Hedgers should consider locking in near record high futures prices for both corn and soybeans now, as prices will likely retreat much further than people expect with harvest as yields are much larger than expected for both crops (but more so in soybeans). We could end up with a 135-140 bu/acre corn crop and a 38-39 bu/acre soybean crop in 2012 - much larger than the anemic yields USDA is currently carrying on the books. That will cause a rapid retreat in prices - one you do not want to suffer through without at least some type of price protection (puts at the minimum).
For producers who are harvesting yields 50% larger than expected, sell Futures/buying puts and waiting for basis to improve might be a prudent alternative.
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