Wow... USDA Slashes Its Corn and Soybean Yield Projections

July 11, 2012 04:01 AM

What Traders are Talking About:

* USDA slashes corn, bean yield projections. The biggest (and most bullish) surprise in this morning's Supply & Demand USDA was a sharp reduction in the World Board's projections for corn and soybean yields. The World Board slashed 20 bu. per acre from the national average corn yield projection to 146 bu. per acre and cut 3.4 bu. per acre from the national average soybean yield projection to 40.5 bu. per acre. These are historical changes on both fronts to reflect "expected impacts of persistent and extreme June and early July dryness and heat across the central and eastern Corn Belt." The market now awaits the first survey-based estimates from the National Agricultural Statistics Service in August, but these projections definitely signal there is awareness in Washington to the weather stress being felt across much of the country's main production area.

The long and short of it: Traders now have incentive to build more weather premium into the market.

* Corn 'cushion' gone. USDA reduced projected 2012-13 total corn supplies 1.753 billion bu. on the combination of a lower projected production and higher projected beginning stocks (old-crop carryover). To partly offset that sharp reduction in supplies, USDA slashed projected new-crop corn use by 1.055 billion bu. -- projected feed and residual use by 650 million bu., projected food seed and industrial use by 105 million bu. (100 million bu. of the reduction was in projected ethanol grind) and projected exports by 300 million bushels. Total 2012-13 corn use is now projected up only 115 million bu. from the current marketing year. To discourage a greater increase in use, USDA sharply raised its projected cash price range.

The long and short of it: The "cushion" in the corn market has been removed -- both on the supply side and the demand side. That promises to keep price volatility high through the 2012-13 marketing year.

* Some hope for improved rain chances. The GFS weather model shows increased precip chances for areas of the eastern and southeastern Corn Belt Friday through Sunday as rains as expected to move up out of the Delta and Mid-South. The European model is drier for the five-day period. The National Weather Service 6- to 10-day forecast for July 16-20 calls for above-normal rainfall in the Delta, Mid-South and extreme eastern Corn Belt, while normal rains are seen from western Ohio to the central Corn Belt. Below-normal rainfall is forecast for the western third of the Corn Belt during the period. Temps are expected to be above normal.

The long and short of it: While any rains are welcome, they would come too late for some of the crop that has baked under extreme heat and dryness.


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