Larger yield and production forecasts should not surprise corn and soybean markets in the weeks ahead and, if projections increase, expect price weakness into harvest.
The USDA's first forecast for 2009 projects a U.S. average corn yield of 159.5 bushels and a crop of 12.761 billion bushels. For soybeans, the U.S. average yield forecast came in at 41.7 bushels, resulting in a production forecast of 3.199 billion bushels.
The USDA's corn yield forecast is based on a combination of producer surveys and objective yield data collected in 10 states.
"The USDA estimate is 4.6 bushels above the trend yield for 2009 and only 0.4 bushels below the record yield of 2004. Based on the adage that large crops tend to get larger, there is some expectation that the yield forecast will increase in subsequent crop production reports,” said Darrel Good, University of Illinois economist.
However, there is mixed evidence of corn-yield potential, he said.
"Some severe hail damage in key Iowa growing areas and some very dry weather in other corn-growing areas during the first half of August may have reduced yield potential. In addition, the USDA's weekly report of crop conditions in the 18 largest corn-growing states showed some modest deterioration in overall crop condition ratings.”
The percentage of the crop rated good or excellent peaked at 72 percent for the week ended June 28. For the week ended August 9, 68 percent of the crop was rated in either good or excellent condition, only 1 percentage point higher than the rating of the 2008 crop a year ago.
"We have estimated a model that explains U.S. average yield based on trend (time), percent of the crop planted after May 20, and percent of the crop rated good or excellent at the end of the season. That model explains 97 percent of the variation in annual yield from 1986 through 2008,” Good said.
"Based on August 9 crop condition ratings, that model projects a 2009 U.S. average yield of 158.2 bushels. That projection should be used with caution because crop condition ratings will likely change and because there is some forecast error associated with the model.”
"We have also developed a crop weather model to explain and forecast state average corn yields in Illinois, Indiana, and Iowa. Average yield forecasts in those three states are used to forecast the U.S. average yield.”
"Based on trend yield, planting progress of the 2009 crop, preliminary weather data through July 2009, and the assumption of average August weather, that process results in a 2009 yield forecast of 165.3 bushels.”
He said these results should also be used with caution because of unknown weather for the rest of the year and because of the relatively large standard error of the model estimates.
Larger crop forecasts would likely keep some pressure on corn prices into the harvest period. In addition, the USDA forecasts of 2009-10 marketing year consumption of U.S. corn appear generous. Beyond harvest, corn prices will be influenced by the rate of consumption and the extent of U.S. and world economic recovery.
For soybeans, the USDA's 2009 yield forecast is tied with 2007 yield, which was the fourth largest in history. The forecast is 1.4 bushels below the record yield of 2005 and 0.5 bushels below trend value for 2009.
"While early August weather has not been perfect, both the crop condition ratings of August 9 and our crop weather model -- assuming average August weather -- point to a higher average yield in 2009. Those models point to yields of 44.1 and 43.6 bushels, respectively.”
Good says the late-maturing soybean crop may be at more risk due to late-season weather events. The USDA reported only 55 percent of the crop setting pods as of August 9. That compares to the previous 5-year average for that date of 72 percent, which includes the relatively small 57 percent of a year ago.