WASHINGTON, D.C. — Stocks in the commodity markets dove after the USDA released its monthly crop yield estimates, with acreage numbers posting much higher than farm analysts were expecting.

 

“You really saw prices tumble following the report,” said John Newton, American Farm Bureau Federation director of market intelligence. “Where the USDA is getting this information is leaning on the crop condition information as much as they are some of their surveys.”

Even soybean prices, which reached record yields in 2016 and this year, took a hit in the market.

“Last year, the record crop was due to very exceptional soybean yields, and this year, the record crop’s really driven by an expansion in planted area,” Newton said. “But certainly, that yield number coming in where it did lead to another record crop to be expected for soybeans.

“That’s really pushed prices lower in the face of a record crop last year and a record crop that came online in South America, another bumper harvest of soybeans in the United States. And in order to move that product, it’s going to move at a lower price.”

According to the USDA’s August 10 Crop Production report, U.S. soy production is forecast at 4.38 billion bushels grown on 88.7 million acres, which, if realized, would be a record. However, Newton said the USDA’s numbers are only projections; late corn is still maturing and the agency could make adjustments in yield projections and planted acres.

“While I expect the crop size to get a little bit smaller, I don’t think it’s going to get substantially smaller, just because conditions are close to where they were on average,” he said. “I think crop yields come in around trend and a cut to harvested area should work to pull down – especially on the corn side – the ending stocks next year.

“There’s a lot of uncertainty in the market. Any potential reductions in that crop size could provide an opportunity to lock in some more favorable prices for that new crop corn and soybeans.”

Chris Hurt, Purdue University professor of agricultural economics, told Farm World there has been an upturn since late July and early August, as seen in the crop condition reports.

“If the USDA was accurate with their August 10 release yield, national corn yields may be 2 to 3 bushels better today and soybeans maybe 0.7 better,” he said. “Or, as some would say, maybe yields will reach the USDA August yield numbers after all, now that the weather is better.”

Hurt said there are two reasons market participants had low yield expectations. “The poor start for this year’s crop in some major production areas: A, the eastern Corn Belt was much too wet early with record corn replant and flooded and stunted plants. B, the well-documented growing drought in the Upper Great Plains led a dramatic surge in spring wheat prices and in early July was threatening Nebraska and parts of Minnesota. And C, the generally dry conditions in portions of Iowa and Illinois.”

Another reason Hurt said for the low expectations is crop condition ratings from the USDA weekly crop progress report, which are released each Monday at 3 p.m. C.ST. He said this year’s crop was rated as among the poorest since 2006 at the start of the season and fell even more, moving into late July or early August.

He said the July 23 soybean crop was the poorest-rated since 2006 – except for the 2012 drought, with the 2017 being the worst since 2006 on July 16 (other than 2012).

“The hypothesis is that market participants put too much faith in these crop

condition reports,” Hurt said. “While they are collected by the USDA, those responses come from county ag educators, FSA personnel, et cetera, and are simply a subjective opinion of ‘how the crop looks.’”

Dave Miller, Iowa Farm Bureau Federation director of research and commodity services, said a significant portion of the “found” bushels were in the southern and eastern seaboard states where record yields are being forecast.

“Yields in the upper Midwest and Plains states are projected to be below last year’s record levels and in many cases, less than trend-line yields,” he said. “In the eastern and southern states, corn and soybean crops are advanced enough in maturity that ear weights and pod counts were available to support the generally good to excellent crop conditions in those states.”

However, in the Western Corn Belt and Upper Plains, Miller said crop maturity for corn and soybeans was not far enough along to provide kernel counts, ear weights and pod counts in the August report. “Most of the data in those states reflected plant population estimates, with yields estimated on average ear weight and pod count criteria.”

But as more data become available in subsequent reports, he said it is likely in the areas under stress, such as the Dakotas and parts of Iowa, yield estimates will be lowered. “However, in the eastern and southern areas where better than average crops are being harvested, it’s likely that a good crop will get bigger,” he said.

“Look for the September crop report to report even better yields in the East and South, and drop yields in the western Corn Belt. The net effect is likely to be a slight decline in national yield estimates for corn and soybeans as more crop data becomes available.”