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From failure to bumper

Soybeans had an unbelievable turnaround in 2005 during the month of August,
gaining almost 3 bu/acre during the critical formation month of August. I never
thought we'd see such a huge improvement in a crop nationally like that again.

Fast forward one year, and 2006 once again does the impossible - a 3 bu/acre
hike during the month of August for soybeans. That's a 7.5% hike in national
average yield during only 4 weeks! We turned soybeans from a crop with yield
potential 3% below trend on July 31 to a crop 4% above 'trend' yields in just 29
days! Remarkable.

In bushels the Pro Ag yield model rose from the year's low yield of 39.949
bu/acre on 7/31 to the year's high yield of 42.62 on Aug. 28th, a whopping 2.7
bu hike in just 4 weeks! That 2.7 bu represents a 200 mb hike in total US
production, which if USDA would fully reflect it in the Sept. report would mean
a 650 mb carryout instead of 450 mb. USDA's ill-timed cut in soybean production, in the last report, will all be erased in September if Pro Ag numbers are

August didn't only improve the soybean crop (although this showed the most
dramatic improvement). Corn yields based on the Pro Ag yield model went up from
the year's low of 145.5 bu/acre on 7/31 to near the year's high yield on 8/28 at
151.05 bu/acre. Corn yields rose a little over 5 bu/acre (about 350 mb higher

During August we also learned that HRS wheat yields weren't nearly as bad as
anticipated, with many yields in eastern areas better than last year (and many
western areas 20% better than expected). Many Canadian areas produced better
wheat than expected so that the wheat outlook is not nearly as bright as thought
just a month ago. Not only is the August rain affecting 2006 crop outlooks for
late season crops, but the 2007 wheat crop outlook is greatly improved with soil
moisture levels restored close to normal right before the critical planting

Net, nationally we have a potential bumper soybean yield in 2006 (and perhaps a
record setting yield if crops continue to improve at the current pace), perhaps
the second largest corn yield ever, a 5-7% below average HRS wheat crop, and we
suffered a disaster winter wheat crop (about 10% below 'trend').

But what a turnaround has occurred in just the past 30 days, as we've added 200
mb production to the soybean crop and 350-400 mb production to corn. We've also
added arguably another 100-200 mb production to 2007 winter wheat potential and
at least 50 mb potential to 2006 sorghum production. This has taken the bullish
edge off the market, and may leave us susceptible to much deeper price cuts in
the next few months than we've seen thus far.

Soybeans have seen a big turnaround, with excessive soybean carryout nullifying the need to attract acres away from soybeans to wheat and corn. If Nov. beans
drift to $5, that will shift acres to corn and wheat in itself, leaving no need
for prices to allocate our shortage (instead they are allocating our surplus

Perhaps it's time to hedge some additional 2006 corn, only using the 2008 July
corn futures at $3.15 July'08. Why sell at $2.24 or $2.41 when the market will
pay 55c/year to store corn? It only costs about 1c/bu/month to store corn once
you put it in a bin, so why give it away when you take it out? There's much
more profit from storing corn than growing it, so why not take advantage of the
market's offer?

For soybeans, perhaps the break will come in the near term with the 2006 crop
turning around so quickly. It's possible that by October we will know we have a
44 bu/acre crop (a new record large yield) and a potential 750 mb carryout (and
$5 futures price). Of course, the SAM producer will just cut acreage more and
prices of soybeans will just bounce back that much more once the US producer
switches 3-5 million acres to wheat and corn. But for the next few months, I'd
rather be short than long a crop that went from a bust to a bin buster! Perhaps
selling at least 30% of the 2006 crop at $5.50 Nov. would be good protection
into harvest???

And with the vastly improved fundamentals of soybeans, corn, and wheat comes
much less competition for 2007 acres. With wheat areas now about perfect for
fall planting, I'd anticipate a much larger acreage of winter wheat at $4.50+
futures (why not when corn is $2.70 and soybeans $5.50). It's time to hedge more
of the 2007 wheat crop as well, with KC July wheat at $4.51. If you're really
gutsy, sell the March at $4.81 and see if it can fall below the July by March!!!

There's no question there's been a huge turnaround in the potential 2006 crop
(and 2007 wheat crop potential) in the past 30 days. The only question is, what
are you going to do about it???

Soybeans had an unbelievable turnaround in 2005 during the month of August, gaining almost 3 bu/acre during the critical formation month of August. I never thought we'd see such a huge improvement in a crop nationally like that again.

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