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U.S. Doesn't Need a Bumper Crop, Analyst Says

Yield estimates continue to drop.

Last week, we asked whether the corn and soybean rally was over.  

There were some specific reasons for that, the main one being the hard selling that took place shortly after the USDA July report came out. There seemed to be some aggressive selling that took place after that report, as if someone knew something about the future direction of the markets.  

Here we are today, with a crop that is still under some stress in certain areas. Realistically, the crop is below average for most of the U.S. and for most crops. Yet, the large ending stocks numbers carryover from last year combined with the large South American crop have left us with a need to get only a near-average crop. 

We don’t need a bumper crop in the U.S. to have adequate supplies of grains. Therein lies the problem with expecting a continued rally in grains all through this summer. The past week had some deterioration in the crop condition, and corn and soybean yield models, but cooler weather forecast the next two weeks (which changed over the weekend) is still putting pressure on grains. Cool weather during corn pollination is critically important, and that has put a damper on further price rallies for now.  

Crop progress numbers were friendly Monday, July 24, with soybean crop conditions falling the most – down 4% to 57% rated G/E (vs. last year’s 71% rating). The Pro Ag yield model dropped sharply, down 0.61 bushel per acre to 46.22 bushels per acre, and that was certainly friendly. That is essentially about 48 mb less production and carryout in just one week of growing season, and soybeans still have a lot of growing season left. 

Corn conditions dropped 2% to 62% rated G/E vs. last year’s 76% rating), with the Pro Ag yield model dropping a more modest 0.4 bushel per acre to 167.6 bushels. That is not quite as bullish as the soybean yield model suggested, but at least it represents a decline in potential corn bushels as well. Corn progress is still a bit behind at 67% silking (2% behind normal), and 8% dough (5% behind normal). Soybeans are 29% setting pods, 2% ahead of normal 27%.

Cotton conditions dropped a large 5% to 55% rated G/E, now closer to last year’s 52% rating. That is the reason cotton futures are trading strong this morning. Cotton is 77% squaring (7% behind normal), while 36% is setting bolls (5% behind normal).  Sorghum conditions dropped 4% to 59% rated G/E (vs. 65% last year), with 38% headed (4% behind normal) and 21% coloring (also 4% behind normal).  

HRS wheat conditions dropped 1% to 33% rated G/E, down from 68% last year. 96% of HRS wheat is headed, 2% ahead of normal. Winter wheat is 84% harvested, 4% ahead of normal. Barley ratings dropped 2% to 51% rated G/E (vs. last year’s
73% rating), with 97% headed (equal to normal). Oat conditions were unchanged at 51% rated G/E, down from 64% last year.  24% of oats is harvested, 7% behind normal.  

The dry weather last week is depleting soil moisture levels along with the high water use of crops this time of year, with a 6% decline in topsoil rated adequate/surplus (now rated at 54% vs. 67% last year). Subsoil moisture also declined 6% to 58% rated adequate/surplus, well below last year’s 70% rating.  

It’s clear we don’t have the crop we had last year, and in fact, the crop is below average for corn, soybeans, HRS wheat, barley, and sorghum. It’s also clear that soil moisture is depleted relative to last year’s high soil moisture ratings at this time of year. So there is no question that we won’t have last year’s bumper crop. In fact, according to Pro Ag yield models, we will have a below-average crop this year. The only question is how much below average. With large stocks, if we have just an average crop, we still will have adequate supplies, so the real question is how much below average will crops be in 2017? If only marginally below average, prices may have already put enough premium in for that scenario.    

There is still a lot of weather to play out for this year’s crops, though. Today the weather forecast is continuing to reinforce the fact that cooler temps (below average) will dominate the Corn Belt the next 14 days. That is nearly perfect for pollination of corn, which is well under way for most states.

Today’s morning weather runs also are adding a bit more precip into Iowa for the next seven days, with a band across the central Corn Belt getting normal to above-normal precipitation. But the majority of the Corn Belt is still forecast to get below-normal precipitation. The eight- to 14-day forecast also added a bit more precip in the morning weather runs in HRW wheat country and the southeast Corn Belt. So now, the southern tier of the Corn Belt and the southeast U.S. will see above-normal precip in the eight- to 14-day forecast, while the northern half of the Corn Belt will see below-normal precip. The western U.S. will still see above-normal temps for most of the 14-day period.     

So while crop conditions currently suggest a U.S. crop yield of corn and soybeans slightly below average, the market is starting to feel more and more comfortable that the current large stockpile of grains will not be depleted much in the coming year. With that comfort is coming lower prices, and until the market can see a change from this scenario, prices could struggle for a while.

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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years.  See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com.

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