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Analyst: Will the USDA Need to Lower Yield Projections?

USDA released its August report Friday, and it was a shocker with the corn yield estimate much higher than anticipated at 175.1 bu/acre, and soybean yields also much higher than expected at 48.9 bu/acre. If realized, these would both be record-shattering yields. What’s so unusual is this high yield estimate was released in August, well before the typical major revisions in yield come (such as during the September, October, or November reports).  

One thing Pro Ag is worried about is that perhaps the yields will need to be reduced in future reports – especially for soybeans. The corn yield is close to the current Pro Ag yield model estimate of 174.5 bu/acre, but the soybean yield estimate is much higher than the Pro Ag yield estimate of 47.5 bu/acre. So perhaps the soybean yield estimate is high? If it were 1 bu/acre too high, that would reduce the production estimate 83 mb, and given the large hikes in projected demand in the August report, which would leave carryout at under 250 mb. A further reduction of another half bushel would push carryout somewhat tight, and we’d now have a rather different soybean situation in place for the supply/demand picture.  

As it was, USDA showed a soybean carryout projection of 330 mb, corn carryout of 2.409 billion bushels, and wheat carryout of 1.1 billion bushels, which are all large carryouts if the yield expectations are correct. However, the one yield that seems to be most in question is the soybean yield right now, as it still is quite early in the year to be forecasting record large yields, especially one shattering previous records by nearly a bushel per acre.

Still, crop conditions do suggest a good crop is on the way. Crop conditions released yesterday afternoon were steady corn at 74% G/E, unchanged from last week. That raised our yield model 0.76 bu/acre to 174.5 bu/acre, still below USDA’s shocking 175.1-bushel estimate in the August report Friday. Corn is now 73% in the dough stage vs. 60% normally and 21% dented (equal to average). Soybean conditions were also unchanged at 72% G/E, with our Pro Ag yield model up .17 bu/acre to 47.5 bu, still well below the shocking USDA August report number of 48.9 bu/acre. Even if our yield model were to go up each and every week until harvest the same amount as this week, we wouldn’t get to USDA’s August number! Is that why soybean futures are higher after the very bearish report? Especially with the large hike in exports for both last year (85 mb) and this year (35 mb). Soybeans blooming were 95% vs. 93% normally, and soybeans setting pods were 80% vs. 75% normally.  

Winter wheat harvested was 97% vs. 95% normally, with HRS wheat 48% harvested vs. 30% normally, so the wheat harvest is going quite well so far. HRS wheat conditions were down 2% to 66% rated G/E. Barley is 55% harvested vs. 34% normally, with conditions down 1% to 71% rated G/E. Sorghum conditions also were unchanged at 65% rated G/E, down from last year’s 68% rating but still a good rating. Ironically, sorghum yields were also hiked significantly in the August report, up 8.4 bu/acre to 73.5 bu/acre. This was also a large hike in projected yield for the August report. Somehow, USDA has made a markedly more aggressive revision policy in 2016 to its projected yields. We hope that doesn’t come back to haunt it, in that it may have to reduce yields in future reports, especially if adverse weather strikes this crop before harvest.  

Weather forecasts still look somewhat favorable, with rain forecast the next seven days in the eastern Corn Belt and southeast. The eight- to 14-day forecast still has rain forecast for the HRW Wheat Belt and could replenish soil moisture there before planting commences this fall. Temperatures are forecast to get below normal in the six- to 10-day and eight- to 14-day forecast, finally cooling from the above-normal temperatures we’ve had since the end of July. 

It will be interesting to see how we finish this year and if prices continue to question the large yields projected in the report Friday. Actually, as of today, prices are higher than before the large yield projections. So, thus far, it appears the market doesn’t believe the large yield projections in the August USDA report.     

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. 

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