Corn prices have taken a beating this year. After a steady climb that peaked in the $4.40s in June, the subsequent price decline has been swift and steady, settling into the $3.30s as of early August.
A lot of this is due to expectations for a bin-busting corn crop that has enjoyed relatively high condition ratings so far, according to University of Illinois ag economist Darrel Good. The yield trend line sits at 168 bu. per acre, but Good says expectations vary a bit from that.
“There is a surprisingly large range in the estimates,” he says. “Expectations are clustered between 167 and 172 bushels, but appear to range between about 160 and 175 bushels per acre.”
The lower range of yield estimates are factoring in “tip back” concerns, reflective of as-now-unseen pollination struggles that keep an inch or more of corn ears unfilled. As Ryan Spurgeon of Hoegemeyer Hybrids points out, there are multiple potential causes for this phenomenon.
“Drought, excessive post-pollination heat, shortage of nutrients, hail, insects, disease, high planting populations and genetics are just some of the many things that get blamed for this,” he says. “One thing is certain – a stress or stresses at the time period following pollination triggered the corn plant to abort some of the kernels at the tip of the ear.”
But according to Good, tip back concerns are not currently overriding overall market expectations for high yields this season.
Because the market trades off both supply and demand expectations, Good admits it is difficult to know what yields the corn market is currently expecting. But the USDA-ERS holds a clue with its model that projects the marketing year average price of corn based on several factors. As of Aug. 5, that model assumes a season average price of $3.21 per bushel.
“Assuming that market expectations for corn demand and consumptions during the year ahead are similar to those projected by the USDA, that price projection suggests the market is likely trading a corn yield above 168 bushels and near the high end of expectations,” Good says.
In other words, the market is assuming the U.S. corn crop will weigh in around 172 to 175 bu. per acre for 2016. But will current conditions start to chip away at these yield expectations? The aforementioned tip back concerns, along with late-season pest outbreaks, could dampen the final numbers. August weather will also play a big role in 2016 yield tallies.
“Yield expectations reflected by current corn prices are especially high,” Good concludes.