Private Crop Estimates Down, But Price Action Signals 'The Market' Isn't Concerned

September 5, 2013 01:07 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading fractionally to 1 cent lower, soybeans are 8 to 9 cents lower and wheat futures are narrowly mixed. Overnight losses have been trimmed, but bears are expected to maintain the upper hand into today's session. Cattle futures are expected to favor the downside this morning, while hogs are called higher.


* Private crop estimates slipping. A Reuters poll of industry analysts shows they expect a corn yield of 154.1 bu. per acre, which coincidently is the estimate we put out immediately following the Pro Farmer Midwest Crop Tour and 0.3 bu. below USDA's initial estimate in August. Analysts' yield forecasts range from 151 bu. to 159 bu. per acre. For soybeans, the average yield estimate is 41.1 bu. per acre, which is 0.7 bu. lower than our estimate and 1.5 bu. below USDA's initial forecast. Analysts' yield forecasts range from 39 bu. to 42.3 bu. per acre.

The long and short of it: Crop estimates are on the decline amid late-season heat and dryness, but with early harvest efforts underway and new-crop supplies moving into the pipeline, corn and soybean prices are on the defensive.

* Wetter, but not wet. Traders are responding to forecasts calling for better rain chances across the Corn Belt over the next seven days like there are going to be "saving" rains. While that may be the case in isolated areas, the forecast is not wet and rainfall activity will be very scattered. In fact, while weather models have increased precip chances, rainfall totals are still expected to be below normal -- even in areas that are forecast to get rains. Meanwhile, temps are expected to be unseasonably hot with readings pushing well above normal, especially in western areas.

The long and short of it: Attitudes can change quickly, but price action signals traders feel crops are close to "made" and that weather concerns are fading.

* Forget the early frost threat. Coming out of Crop Tour, one of our major concerns was the immaturity of the crop and how vulnerable that made corn and soybeans across the Corn Belt to an early (or even normal) frost. Well, those concerns have been erased as the extreme heat and building dryness since Tour have greatly pushed crop maturity. In fact, if forecasts calling for continued above-normal temps and dryness materialize, I wouldn't be surprised to see corn and soybean crops near their five-year averages for maturity soon. The heat and dryness is really pushing crop maturity. Unfortunately, you don't build big yields by rushing crops to the finish line.

The long and short of it: With traders convinced the push on crop maturity is a good thing and early yields coming in strong, it's going to be a late realization that there are problems with this year's crops, especially the corn crop.


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