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Will corn, soybean production forecasts grow?

Agriculture.com Staff 08/17/2009 @ 12:03pm

Larger yield and production forecasts should not surprise corn and soybean markets in the weeks ahead and, if projections increase, expect price weakness into harvest.

The USDA's first forecast for 2009 projects a U.S. average corn yield of 159.5 bushels and a crop of 12.761 billion bushels. For soybeans, the U.S. average yield forecast came in at 41.7 bushels, resulting in a production forecast of 3.199 billion bushels.

The USDA's corn yield forecast is based on a combination of producer surveys and objective yield data collected in 10 states.

"The USDA estimate is 4.6 bushels above the trend yield for 2009 and only 0.4 bushels below the record yield of 2004. Based on the adage that large crops tend to get larger, there is some expectation that the yield forecast will increase in subsequent crop production reports," says University of Illinois economist Darrel Good in a university report.

However, there is mixed evidence of corn-yield potential, he says.

"Some severe hail damage in key Iowa growing areas and some very dry weather in other corn-growing areas during the first half of August may have reduced yield potential. In addition, the USDA's weekly report of crop conditions in the 18 largest corn-growing states showed some modest deterioration in overall crop condition ratings."

The percentage of the crop rated good or excellent peaked at 72% for the week ended June 28. For the week ended August 9, 68% of the crop was rated in either good or excellent condition, only 1 percentage point higher than the rating of the 2008 crop a year ago.

"We have estimated a model that explains U.S. average yield based on trend (time), percent of the crop planted after May 20, and percent of the crop rated good or excellent at the end of the season. That model explains 97% of the variation in annual yield from 1986 through 2008," Good says.

"Based on August 9 crop condition ratings, that model projects a 2009 U.S. average yield of 158.2 bushels. That projection should be used with caution because crop condition ratings will likely change and because there is some forecast error associated with the model."

"We have also developed a crop weather model to explain and forecast state average corn yields in Illinois, Indiana, and Iowa. Average yield forecasts in those three states are used to forecast the U.S. average yield."

"Based on trend yield, planting progress of the 2009 crop, preliminary weather data through July 2009, and the assumption of average August weather, that process results in a 2009 yield forecast of 165.3 bushels."

He says these results should also be used with caution because of unknown weather for the rest of the year and because of the relatively large standard error of the model estimates.

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Larger yield and production forecasts should not surprise corn and soybean markets in the weeks ahead and, if projections increase, expect price weakness into harvest.

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