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Harvest pressure?

Ray Grabanski 10/07/2011 @ 1:33pm President, Progressive Ag www.progressiveag.com

Harvest is expanding under excellent harvest weather, with very warm and dry conditions across most of the US the past week that is allowing rapid harvest progress of corn and soybeans.  It also is allowing excellent drying weather for the crop, meaning the ability to put the crop in the bin with a minimum of drying cost.  This is a boon for producers, as the cost of drying corn has been significant in some recent years.  The combination of rapid drying and harvest and the reports of better than expected yields put significant pressure on prices in recent weeks.  Corn has dropped nearly $2 from its high just a month ago to its low on Monday/Tuesday, with soybeans dropping about $3 as well and wheat feeling the pressure as it has been priced as a feedgrain (even at a discount to corn for the past few months for SRW varieties).  

While corn and soybean prices are bouncing back this week after a sharp selloff into the weekend, this might just be a 'dead cat bounce', or one which is a counter rally in an otherwise bearish market.  It might be difficult for grains to rally with stable yield forecasts and the harvest expected to be rapid in many areas.  The recent warm weather will also allow late seeded crops in OH, PA, MI, and WI to mature with little frost damage in spite of their very late nature all summer.  The crop dodged a bullet in this regard, and its possible that yields out of these states might be quite a bit better than anticipated earlier this year due to the late planting.  The warm, long summer going into fall might enhance yield prospects in this area, and that could put more pressure on prices as we approach November.  

Private estimates of corn and soybean yields continues to be relatively stable (following rapid declines in the August and Sept. reports for corn, August only for soybeans), reflecting the dramatically improved weather in August and September for much of the corn belt.  Temps cooled to normal or even below normal following a torridly hot July, and that allowed soybean yield potential to remain high (much higher than USDA's August projection, which may have gotten ahead of itself with 2 bu/acre cuts to 41.8 bu/acre).  Now, private estimates of corn and soybean yields are consistently coming in higher than USDA's last Sept. report, especially in soybeans where estimates range from 41.8 bu/acre (USDA's Sept. number) to 42.8 bu/acre (about where Pro Ag yield models are at today).  Pro Ag corn yield projections have fallen to near 154 bu/acre with damage from freeze in the northern corn belt in mid-September, but this number is still well above USDA's recent 148.1 bu/acre Sept. estimate.  

Acreage estimates of USDA have been questioned all year by various data that suggested that less acres were planted (and more acres prevent planted) than originally estimated.  But the USDA final small grains report only reduced HRS planted acreage fractionally, and it was the HRS area of ND/MN, and MT that suffered the most from the wet spring.  While some private estimates are still cutting corn acreage (and hiking soybean acreage fractionally), Pro Ag expects only minor revisions in planted acreage of these crops.  Our reasoning is that the biggest planting problems were in the HRS wheat country, where the wheat planting season was shortened considerably.  By the time weather allowed planting, it was time to plant corn and soybeans and other late season crops.  So the biggest brunt of PP occurred in wheat acreage, not corn or soybean acreage.  In fact, soybean acreage may have increased from earlier projections (as some other private firms have reported.)

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