Go Into September's USDA Report With Confidence, Analyst Says
On August 12, the USDA surprised the marketplace in its monthly Supply and Demand report.
We'll look at some reasons why the USDA may have raised its yield number and, consequently, why future changes could occur.
In this report, it raised its estimated corn yield from 166 bushels an acre to 169.5. The market was expecting 164 bushels, determined by an average of analysts' estimate prior to release of the report. The 3.5-bushel increase is a head-scratcher.
Weekly crop ratings, produced by the USDA, indicated no change during the previous four weeks. Additionally, many private sources that utilize data collection, including satellite imagery, are suggesting yield could be well below 165. All that begs to question the accuracy of the estimate seen in the USDA report.
At best, the yield number is a guess during the month of August. Even with the wet spring and late-planted crops, satellite imagery indicated the crop was greening up through July. This may have been a factor in the higher yield estimate.
The USDA may have based its estimate on full crop maturity. According to USDA crop progress figures, the crop is far behind schedule in many states. Green-up later in the season may not mean a mature crop or normal yield, as it lacks sunlight and heat degree days after pollination. There is the thought that crop planted after mid-May loses about a bushel per day of yield potential. If the USDA made its estimate based on full crop maturity, we could see adjustments in the months ahead.
Key areas that were late planted, in particular Illinois and Indiana, also struggled with dry conditions in July. This could affect yield potential, and add to the doubt of a yield increase.
The report, as a whole, was negative on three fronts: increasing yield, higher acres, and a reduction in demand. The combination of these three sent prices reeling. The question now is if the yield increase on the August report will be followed by a yield increase or decrease in September.
The old saying is that big crops get bigger. One has to wonder if this year is different. We think so. In September, the USDA will estimate yield with “boots on the ground,” as they conduct a thorough survey of fields. That may (or may not) confirm its August estimate.
In any case, understand that we cannot control all the factors that affect prices. Think ahead. Get yourself positioned so that you can go into the September USDA report with confidence.
If you have comments or questions contact Top Farmer at 800-TOP-FARMER extension 129 and ask for Bryan Doherty.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.