Did USDA’s June Yield Cut Raise Prices Too Fast and Kill Demand?

12:24PM Aug 13, 2019
( Jo Windmann / Farm Journal )

Some analyst suggest June’s yield cut lead to artificially high prices, making the impact of the August report, which called for lower yield and diminished demand, much more pronounced.  

 “In corn you can argue that [reducing yields by 10 bu. in June artificially raised the price and helped decrease demand], because the report conditions where just so much outside of the realm of what’s been normal in the past,” says Chip Nellinger with Blue Reef Agri-Marketing. “In June they used planting data to come down on yield but then we still have the question of acreage.”

In a more normal year, the August report would have objective yield data, but because of the crop isn’t far enough along to provide much insight, they didn’t include it. USDA did, however, increase their yield estimates in both crops.

“That again throws the market off, we probably went too high [in June] and killed some demand and now we’ve overshot it to the downside,” Nellinger says. “My fear is on the acreage side and we won’t have any answers until January.”

Yesterday’s reports did nothing to add clarity to an already confusing season.

“We have so many questions that aren’t getting answered,” says Sam Hudson, with Corn Belt Marketing. “Now the fear is it’s a race to the bottom to see if we can find demand.”

For now, Nellinger and Hudson are looking forward to the September report to get what they think will be a more real view of how yields will shape out.

“We’ll have hard yield data from the field,” Nellinger says. And for those farmers and analysts expecting yields to turn out lower, that’s when you’ll start seeing it. “Acre [estimates] probably won’t change all the way through January. The only hope for the markets is to bring corn and bean yields lower in September.”

What you need to do.

First, don’t panic.

“If you’re in a situation where yield is in question you have to immediately turn to insurance and decide if it’s worth chasing this market,” Hudson says. “If you’re in an area with good weather, consider what we’ve seen on the demand side and use your [yield] strength as an opportunity.

“Short term, new crop basis probably doesn’t break a whole lot. It’ll be interesting to se what old crop does in the meantime—keep an eye on that,” he adds.