Yield models continue to rise; buy puts

ff_admin
Farm Forum

09/01/15 — The Progressive Ag corn and soybean yield models continued to rise this week for the ninth straight week in corn and seventh straight week in soybeans, continuing the trend since the end of June. We now have the largest estimates of the year at 172.8 bu/acre corn (up 0.27 bu/acre from last week) and 46.50 bu/acre soybeans (up a relatively larger 0.21 bu/acre in soybeans). This yield for corn would represent a new record large yield, even larger than last year’s 171 bu/acre! And the pace that soybean yields are now expanding mean that even USDA’s large yield estimate in August at 46.9 bu/acre might in the end be low as we rose to 46.5 bu/acre in this week’s yield model.

Specifically, crop conditions out Monday, Aug. 31, showed that soybean conditions were unchanged at 63% rated G/E (with 1% moving from good to excellent), apparently at a time when conditions typically decline this time of year. The steady conditions meant the Pro Ag yield model rose 0.21 bu/acre last week, with the yield estimate now at 46.5 bu/acre and within striking distance of the large 46.9 bu/acre USDA August estimate. Corn conditions were down a small 1% to 68% rated G/E (1% moving from good to fair), with the Pro Ag yield model rising 0.27 bu/acre to 172.8 bu/acre, now 4 bu/acre above USDA’s August estimate of 168.8 bu/acre. It’s becoming apparent that we will have above average crops in 2015, and prices will need to drift lower to attract demand to get rid of excess supplies from another large crop.

Crop progress continues to move forward, with corn reaching the dough stage at 92% vs. 90% average, and corn dented at 60% vs. 60% average. Corn is 9% mature vs. 15% on average. Soybeans setting pods are at 93% vs. 95% average, with 9% dropping leaves vs. 7% on average. A few more weeks frost free and the soybean crop for the most part will be made!

Other crops are developing equally well, with cotton setting bolls at 94% vs. 96% average, with 22% opening bolls vs. 27% average. Cotton conditions improved 1% to 54% rated G/E vs. 50% last year at this time. Sorghum is 95% headed vs. 90% on average, with 58% coloring vs. 54% normally. Sorghum is 29% mature vs. 30% normally, with 15% harvested vs. 23% on average and conditions rated 69% G/E, the same as last week and vs. 59% last year at this time. HRS wheat harvest is moving along quickly, with 88% harvested vs. 62% on average, with HRS wheat crop conditions not reported as we are now over 50% harvested. Oats is 95% harvested vs. 91% normally, with barley harvest at 93% complete vs. 67% normally. Pasture and range conditions declined 2% to be at 50% rated G/E, above the respectable 48% rated G/E last year. Topsoil moisture conditions remain high, although they were depleted somewhat this week 64% rated adequate/surplus. Subsoil moisture levels declined 3% as well this week as the crop mines stored soil moisture to fill during the dry week last week, with the subsoil now rated 66% adequate/surplus (still well above last year’s 59% rated adequate/surplus).

This coming week on Friday, Sept. 11, we get an updated yield estimate for corn and soybeans that are holding the attention of the trade. The ill-fated Pro Farmer tour is forecasting smaller corn and soybean crops than last months August estimates, with many in the trade anticipating the same. But the Pro Ag yield models expanded 1.25 bu/acre in soybeans since the end of July, with corn expanding 4 bu/acre since July 27. Obviously, Pro Ag expects unchanged or higher soybean yield estimates and about 2 bu/acre higher corn estimates. If so, this will be very bearish in the report. We’d encourage specs and hedgers to buy corn and soybean puts for the report to protect from a sharply lower market on report day.

Pro Ag remains bearish from here, expecting us to make new lows (which we have done in wheat and soybeans already) as we get into harvest of the corn and soybean crop. Pro Ag has been an aggressive seller of corn above $4 December corn futures, and soybeans above $9.65 November15 futures (with many of our sales clustered near the summer highs in early July). These may look awfully good by harvest of this year!