Market analyst: Disappointing yields

Ray Grabanski
Special to the Farm Forum

Harvest is grinding forward as we have very dry weather this fall, with almost no rain the past two weeks, or forecast to fall in the next two weeks. In fact, this would be considered a horrible drought were it during spring planting. But it’s harvest time, and for most crops dry weather helps harvest to advance quickly. We’ve now harvested 20% of the nation’s soybeans, 5% ahead of normal as the weather couldn’t be better to allow harvest to progress. However, it is a bit dry for some soybeans as they’ve dried down so quickly that farmers couldn’t harvest them at the optimum levels, and instead are out there at 12% moisture or less. That means we could have 2-5% less soybeans than expected — simply because they are so dry! This week’s soybean crop rating was 64% G/E, up 1% from last week while the Pro Ag yield model declined slightly to 49.8 bu/acre, down 0.05 bu/acre. That is over 2 bu/acre (about 175 mb) below USDA’s September report of 51.9 bu.

Corn harvest also is advancing, with 15% harvested now (1% behind normal) while 75% is mature (10% ahead of normal). Corn conditions this week were unchanged at 61% rated G/E, but the Pro Ag yield model declined 1.4 bu/acre to 176.5, now 2 bu/acre below USDA’s Sept. guess. The fact that both soybeans and corn are declining indicate yields are disappointing in fields, and its likely USDA will continue to cut production estimates in both corn and soybeans into the final January report. Cotton is 13% harvested, about 1% behind normal but they have months left to complete cotton harvest. Cotton conditions dropped 2% to 45% G/E.

Sugarbeet harvest is advanced to 21%, 4% ahead of normal as there is almost no rain forecast to fall in the next two weeks. Sorghum is 31% harvested, 2% behind normal while conditions are at 51% rated G/E, well behind last year’s 65% rating. Winter wheat is 35% planted, 2% ahead of normal and 10% emerged, also 2% ahead of normal. Pasture and range conditions continue to decline, this week down 1% to 26% rated G/E. Pastures are so dry that many livestock will come off pasture and need supplemental feed to survive for much longer this winter. Soils are getting quite dry, with only 55% of topsoil rated adequate/surplus, down 3% from last week. Subsoil is 56% rated adequate/surplus, down 1% and well below last year’s 70% level.

Weather forecasts remain extremely dry for the U.S. the next 14 days. In fact, it could become a problem for the west as it is so dry that virtually no rain will fall in the western U.S. the next two weeks. That extreme dryness at one point will become a concern as a lack of water eventually will become a problem (winter wheat planting first, then next spring). For livestock, it is a problem now as there will be no pasture/rangeland worth grazing in the western U.S. without rain soon. That will put livestock on supplemental feed virtually all winter. For now, the extreme dryness is good for corn belt harvest, but the lack of soil moisture lingering into spring could produce the worst drought since 1980, 1988, or 2012.

Pro Ag notes that Brazil is also suffering from hot temps. Brazil also has almost zero chance of rain in the next week, and only slight chances in day 8-14. This could become a huge problem for Brazil — which usually sees a return of rainfall to the country about this time in October. Argentina is dry as well, although their temps are below normal at this time (unlike Brazil).

It’s amazing how quickly things can turn around, but obviously the large surpluses forecast for the U.S. only a little over a month ago are not going to happen. The combination of disappointing yields and much improved Chinese demand is rapidly dropping most analysts projected carryout, this one included. As one farmer told me, “I make more money with lower yields,” and 2020 might not be an exception. At first I thought that made little sense, but he meant that nationally when the farmers get smaller yields, the rise in price more than makes up for lost bushels. The reason is that corn, wheat, and soybeans have an elasticity of demand of about 3-5, meaning that for every 1% drop in yield, prices go up 3-5%. Alternatively, for every 1% hike in yield, prices go down 3-5%. So while the bad news is that U.S. yield projections for corn and soybeans are dropping, the good news is that prices will more than make up for those losses.