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Is the Nation’s Corn Yield Estimate Too High?

Will future USDA reports see corn yield estimates fall, analyst asks.

Corn futures have been trading in a sideways price range ($3.42 to $3.88) for more than three months. We term this as base-building.

The inability for December futures to retest last year’s low ($3.37 December 2017 futures) after recently sinking to $3.42½ and then turning higher is a supportive factor heading into harvest.

Despite negative USDA Crop Production and Grain Stocks reports in September, futures climbed to near $3.70. Harvest delays due to weather may have something to do with the recovery. Yet, others may argue that record demand and a lack of farmer selling may be the reasons.

Another consideration is whether the USDA yield estimate at 181.3 bushels an acre is too high. This is nearly 5 bushels an acre larger than last year’s all-time record yield of 176.6 bushels.
 
It’s still early in the harvest season to make strong conclusions (26% harvested as of September 30). Feedback, so far, suggests yield variability, and many are indicating their crop may not be as large as last year’s.

This has been a strange year weather-wise, as spring had much of the Western states broiling in hot and dry conditions, while portions of the north-central Midwest struggled with too much moisture. Yet, the crop did eventually get planted, and much-needed rainfall fell where needed.

Yield reductions, however, are expected in both regions. A dry stretch through most of July for the southern third of the Midwest also suggests that top-end yields are diminished.
 
Despite all of these challenges, the USDA’s most recent yield estimate was a bit of a surprise, as it exceeded the previous month’s estimate by 2.9 bushels an acre. In addition, the August estimate was a surprise at 178.4 as compared with prereport estimates near 177 bushels. The question is whether yield reductions are in store on future reports.
 
Declining world inventories, along with increasing world demand, is setting the stage for a potential price rally. To prepare for this, consider purchasing call options and setting sell targets at higher prices. When prices rally, your sell orders will be triggered, and you will have reownership in place. Consider September or December calls to capture enough time.
 
Many commodity prices have risen this past year with energy markets leading the surge. As volatility and commodity prices heat up, it reminds us of 2005-2007, when prices seemed to grab traction and begin to move higher regardless of fundamentals. Then they exploded with the equities in 2008.

High volatility could be in store, as demand for corn is outpacing supply. Those who are well balanced by making responsible cash sales and having ownership through the use of fixed call options may fare best.
 
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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.
 
Carol Tillmann Front Desk Administrative Assistant | Stewart-Peterson Office: 800.334.9779 | Fax: 262.334.6225 ctillmann@stewart-peterson.com
www.stewart-peterson.com
 
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.

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