What Pro Farmer’s Shocking Yield Estimates Mean for the Market

Corn and soybeans ended higher Friday with December corn making new highs, while wheat was lower.

Pro Farmer’s Shocking Yield Estimates
Pro Farmer released its yield and production estimates on Friday and the cut in corn yield was a shocking 173.2 bu. per acre with production at 15.344 billion bu.

Soybean yield was pegged at 53.3 bu. per acre with production at 4.572 billion, which are both records.

Why the Big Cut in Corn?
The yield cut on corn is 7.5 bu. below USDA’s August estimate and production is down 670 million bu.

Why was Pro Farmer so aggressive?

Lane Akre, economist with Pro Farmer says, “USDA had zero objective yield data in that August survey. It is farmer surveys, word of mouth, go out look and see how the fields look. It’s NDVI data and a little bit of the crop progress report and crop conditions.”

He says the crop looks good from the road but once in the field you find out the ear counts aren’t there. The ear length isn’t there.

“And those two hand in hand, both being lower across the seven states makes it a real grind to make a bigger yield,” he explains.

Furthermore, he says with high ear counts, its typical to see a smaller ear, but there’s a lot of them. Plus, with low ear counts, the crop will have pretty big ears.

“We had scouts not finding ears over 8 1/2 inches until the last day of the tour. That’s shocking especially given how low your counts were in the eastern part of the corn belt. So, between those two and the potential poor finish to this crop because of how much rain we’ve had, the nitrogen bleed it’s not going to be able to get those really high test weights that you would have to have to offset those two lower metrics and we see that being a big drag on yield,” he adds.

States All Lower on Corn Yield
Plus, every state on the tour showed lower yield estimates than a year ago and the Western Corn Belt had a lot of record yields which helped pull up the national corn yield average to a record 186.5 bu. This year every state was down.

“USDA sees a smaller crop as well in some of those states and we’re moving in similar directions in some of those but it’s just a true testament of how important that objective yield data is,” he states.

Derecho, Flooding Offset by Less Disease in East
The derecho and flooding in the Eastern Corn Belt will likely have a negative impact on yield but it will be offset somewhat by the lack of disease. Last year Southern Rust cut yield severely in the corn.

Akre says, “The big concern in the east right now is just how much rain is out there. They’ve got a lot of moisture to work through and that’s going to cause more concerns for that corn crop. The bean crop is going to be struggling as well. And how that affects some of those flooded out areas, it’s hard to say.”

He points out disease pressure did pick up the farther they moved into the Central Corn Belt and then tapered back off in the West.

The maturity of the corp also increased going West.

“The whole crop has seen heavy moisture in June. So the crop drying out in the west and that disease pressure breaking up, you have to wonder if the eastern states, Indiana and Ohio, are going to see more of that disease as the crop gets closer and maturation and it’s got a long way to go we had a lot of corn samples that were blistering where pollen was barely there and corn was barely pollinated,” so he says the crop has a long way to go in portions of the Eastern Corn Belt.

Western Corn Belt Too Dry and Hot
The opposite was true in the Western Corn Belt where many areas suffered from drought and heat in July and that caused pollination issues, especially with the hot night time temperatures.

That followed a cold start to the planting season that hurt emergence and resulted in some replant.

The crop fell behind and once it finally turned hot in July it grew too fast and caused some pollination issues.

Corn Market Hits New Highs on Friday
The corn market rallied most of the week on the state by state results falling below last year and USDA’s projections.

On Friday December corn finally got above the May high of $5.06 1/2 and closed above that level which is bullish, especially in August.

But how much higher does corn need to rally to price in 670 million bu. less corn?

Akre says, “It’s really hard to say. I’ve ran the correlations between where our ear counts are and where USDA ends up in their population. So I have a strong hunch that USDA is going to see similar results to what we saw and confirm our findings in that September crop production report. And I think it’s just going to be a volatile market. We’re going to see that volatility work both ways.”

So, he says its important to have price targets in place.

“In terms of how high prices go I think it’s it’s really hard to say. I think we’re still at the beginning of the move but it’s really hard to put any kind of price tag on it but we’re getting consecutive closes above that $5 mark, historically a really strong resistance level and the market’s been chewing through it seemingly pretty easily,” he adds.

This does effectively put the stocks to use ratio below the 10% threshold that is a trigger for the corn market to rally above $5.

Soybean Price Reaction
With yield going up .6 bu. from USDA’s estimate in August and production up 53 million bu. it may not have much of a price impact because of the robust demand compared to a year ago.

“Yeah, more of a minimal impact on soybeans. There is a lot still for the soybeans to mature, to get to maturity, to realize some of that potential. So weather is going to play a really important role over the next month in beans. So, I think the market’s going to be paying really close attention to that and how the disease is in the East with soybeans just in standing water and how they handle that and how widespread some of these acreage losses could be,” he adds.

Akre says they are using USDA’s acreage data from the August report and went through the FSA data, so they feel like USDA is in a reasonable spot to not have to cut harvested acres despite some of the flooding in the East.

“You know if you cut it a couple hundred thousand it’s not going to make much of an impact so we just opted to stay with that figure but it’s hard to say the soybean crop is going to be affected much by these tour results it’s going to be weather over the next few months,” he says.

Demand Key for Soybeans
Plus, demand has been robust with China in the market.

“We’re about a month away from Xi visiting the U.S. and how those purchases continue to stack up is key. We had those big daily export sales today to China and it looks like looks like they could be in the corn market as well. We kind of saw that in the options market and today we saw it in the cash market,” he states.

China and unknown destinations did have flash export sales of nearly 53 million bushels of new crop soybeans.

Bull Markets Need to be Fed
To keep the momentum going the bull market will need to be fed.

Akre says that means the market will need to see more objective data to confirm what they found on tour.

“If USDA goes out, they find the same thing. It’s like, yeah, the crop is just not out there. we’re going to have to keep a really close eye on is how demand holds up. We’ve got this record export demand these past several weeks in terms of bushels shipped, how that continues to hold up and how the soybean shipments start the new marketing year. You know, we’re not too far off of that. Typically, that’s when China is importing a lot of their soybeans. That’s when the cargo start heading to China. So it’ll be really important to watch those export books,” he says.

For corn it is important to watch how corn for ethanol use holds up and he thinks it will stay strong with all the energy concerns.

Soybeans Need to Take Out July Highs
For soybeans technically the market also needs to take out the July highs.

For November soybeans that is $12.56 1/2.

“Yeah, and the market’s kind of been trading what we found on tour, corn has been very strong, and soybeans have been somewhat of a laggard. I think there’s still a lot of doubt in the market in terms of whether or not China’s going to be actually buying all these beans. But from what we’ve seen here recently, I think they’re going to be in the market, and I think it’s kind of undercounted.” he adds.