A Tale of Two Crops In 2015
The corn crop has been improving in yield potential significantly the past few weeks. As a result, we are now only slightly below the 166.8 bushels per acre that USDA has been projecting all year.
The Pro Ag yield model rose another 2.86 bushels per acre this week (7/13) to 166.6 bushels per acre on unchanged conditions, up significantly from the yield of only 161.8 bushels per acre just a few weeks ago (which was the low of the year). Now we have a crop that is rapidly improving in yield potential, and that is a concerning development in mid-July, especially with a rallying market.
The problem for the market is we have rallied 90c from the lows made just a few weeks ago in Mid-June.
The market has rallied on ideas that the crop has been irreversibly damaged by the wet conditions of May and June. Crop conditions show the crop in Illinois, Kansas, and Missouri is rated only 50% to 59% good/excellent, while Indiana, North Carolina, and Ohio are rated from 40% to 49% G/E. These states are all suffering with a below-average crop in the field, with some horrendous conditions in parts of these states.
However, the states of Colorado, Iowa, Kentucky, Minnesota, Pennsylvania, Tennessee, and Wisconsin are all rated above 80% G/E, indicating they might be able to produce record large yields in 2015. Nebraska, North Dakota, and South Dakota are rated from 70% to 79%, so these states are also highly rated. While we have a tale of two crops in 2015 (bad areas, good areas, and not much in between), overall, the national crop yield potential is about average.
More importantly, the yield models are improving recently nationally, suggesting we now have a crop just slightly above average, which is a lot better than the Internet postings and recent media discussion have suggested.
Soybean conditions dropped 1% this week to 62% G/E, but the yield model rose there as well by 0.14 bushel per acre to 45.12 bushels per acre, showing for the second week in a row a rise in yield potential nationally.
Soybeans also are a tale of two crops, with crops highly rated in Wisconsin and North Dakota (>80% G/E), rated quite good in Iowa, Kentucky, Louisiana, Minnesota, Mississippi, Nebraska, South Dakota, and Tennessee (70% to 79% rated G/E). The rest of the crop is either poor (40% to 49% rated G/E in Illinois, Indiana, Kansas, and Ohio) to very poor (only 32% rated G/E). Yet collectively, the crop yield potential has been improving the past two weeks. With a warmer/drier forecast the next two weeks and still soggy soils almost nationwide, the crop is likely to continue to improve in yield potential. Granted, in the eastern Corn Belt the improvements are from already low levels, but it still represents a national improvement in yield potential.
We at Pro Ag are looking at the recent rally as an opportunity to sell a large share of the 2015 crop. We have hit price objectives to sell additional crop at $4.35 and $4.45 Dec futures, and in fact corn has rallied to new 12-month highs recently. But we are concerned that we will not hold these levels.
Weather, of course, can still have an impact on the final corn and soybean yields. However, the recent developments of improvements in yield potential the past two weeks with warmer/drier weather in the western Corn Belt the past few weeks, and the forecast for a drying out and warming up of the forecast in the eastern Corn Belt are concerning.
Of course, the market could just keep on rallying on weather concerns, especially now that the momentum is higher. Sometimes these trends can end quickly, too, and if we don't make sales now, it could be an opportunity that is lost later.
So we are recommending that corn producers make catch-up sales by selling another 25% of 2015 crop at the current price (closing at $4.5225 December futures). Soybean producers can also sell another 25% (moving to 40% priced) at $10.35 November futures (which was hit again today).
In the USDA report Friday, Pro Ag correctly anticipated that USDA would not change the projected corn and soybean yields in the Friday USDA report as our yield projections at the time (7/6) were not much different than USDA at 164-bushels-per-acre corn (vs. USDA at 166.8 bushels) and soybeans at 45 bushels per acre (vs. USDA at 46 bushels per acre). Without changes to the corn and soybean yield, most of the other news was relatively well anticipated, with 2015-16 corn carryout cut to 1.599 billion bushels (vs. 1.508 anticipated), soybean carryout at 425 mb (vs. 378 anticipated), and wheat at 842 mb (vs. 855 mb anticipated).
Wheat production numbers were smaller than anticipated in winter wheat but higher HRS wheat at 2.148 billion bushels (vs. 2.149 anticipated), down from 2.121 billion last month. World ending stocks were 193.95 mmt corn (vs. 195.30 mmt anticipated), 81.68 mmt soybeans (vs. 83 mmt anticipated), and 212.06 mmt wheat (vs. 200.6 anticipated with most of the change in Chinese stocks).
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