Recon Ag Marketing
Greg Wagner is president of GWX – Ag Advisors. For over 25 years, he has specialized in advising agricultural producers and end-users on marketing and risk management decisions. GWX Ag Advisors integrates fundamental and technical analysis, combined with experienced historic perspectives of agricultural markets in the decision-making process.
USDA Ag Outlook Forum - Focus on 2013 Corn Yield
Mar 01, 2013
The grain market balance sheets presented at the USDA Ag Outlook Forum represent a first glimpse of an earnest effort to define the contours of the balance sheets of grain markets for the 2013/14 marketing year. Given that it is an earnest and collaborative USDA interagency effort, it is also recognized as being inherently tentative. That tentative aspect opens a pathway for some broad-based quibbling over virtually each and every line item of the balance sheets.
The fact that corn, soybean, and wheat markets took the numbers in stride is a testament to the fact that the USDA forecasts are pretty much in sync with those already circulating in the trade. By default both USDA and the trade must proceed with a set of assumptions on weather. That is the dominant consideration from which all else arises. The S&D balance sheet on corn displayed in this post provides some perspective of the upcoming 2013/14 crop marketing year. As well as the current 2012/13 and two proceeding seasons.
Although there are a number of S&D line items in the 2013/14 forecast that warrant particular attention, for the moment I will focus on one. The one line item that I regard as "numero uno" is – YIELD.
1.) It appears that perhaps the most prominent point of contention is focused on yield. With a forecasted 163.6 BPA yield, it appears that a majority opinion has coalesced behind the idea that it is too high. It can be reasonably assumed that given the current USDA yield model, this yield can be attained. What is not being addressed is the potential for that 163.6 yield not only to be attained, but exceeded. With national average corn yield history over the past 20 years as a guide, a sound an argument as any can be made on this point. Two particulars years’ standout – 1994 and 2004.
In 1994, the US was emerging from the "Great 500 Year Flood" of 1993. Yields leapt from 100.73 BPA in 1993 to a record 138.63 BPA in 1994. This also contributed to the first ever 10 Bil Bu corn crop. Understood is the argument that there was ample subsoil moisture in 1994 and weather cooperated, as well. Even so, that 1994 yield represented not only a rather profound 38 BPA YOY increase, but exceeded the prior record yield of 131.5 BPA set in 1992 by 7 BPA or 5%. We have a new benchmark.
Wind forward 9 years, yes it took that long, before that 138.63 BPA was exceeded – 2003 established a fresh record yield of 142.24 BPA. That’s a rather marginal 3.61 BPA betterment or 2.5% than was realized in the 1994 benchmark. Particularly the number of growing seasons it took to establish a fresh record high yield. Also, it was relatively unimpressive in percentage terms, as well as actual bushel terms - the 2003 versus 1994 BPA increase was one-half of the 1992 versus 1994 yield jump.
Ah, but it didn’t take very long at all for record the 2003 record corn yields to get interesting again - the next growing season, 2004. Yes, as perfect mixture as you can get in the heart of the Corn Belt pushed national average US corn yields to what was then an unimaginably high of 160.39 BPA. That blew through the prior year’s record yield by over 18 BPA or 11.3%!
The most entry into the tale of record corn yields occurred in 2009 when national average corn yield hit 164.7 BPA. It took 5 years and the old record was bested by 4.3 BPA or 2.5%.
Now with USDA penciling in a yield of 163.6 BPA for 2013, I regard that as being reasonable. Recall, they came out of the gate in 2012 in the May 2012 WASDE (the May WASDE which is the first official S&D balance sheet for the marketing year) with a record yield of 166.0 BPA. Of course, subsequent and humanly unpredictable Mother Nature driven events, whittled that down to 123.4 BPA.
I make every diligent effort to be familiarized and acquainted with the arguments – bullish or bearish. And what catches my attention at this time is this analytical lean by the trade that USDA’s 2013 forecasted corn yields at the Ag Outlook Forum are a tad too high. Yet, there is deafening silence on this issue, supported by history, that corn yields in 2013 may exceed these conventional expectations. If 2013 ultimately proves to be a beneficent "outlier" in the yield bell curve, the market will be turned on its head again, but in another direction. Do not rule out national corn yields as high as 173 BPA in 2013. They exist somewhere in the pipeline and the will be attained in the historical not too distant future. It’s something producer’s should not be in the company of the general consensus and dismiss such prospects out of hand.