Next week USDA will begin its crop survey in preparation for the release of its crop production report on August 11. Recent history shows the potential for a significant change from the agency’s initial forecast to its final total released in the August report.

Uncertainty about final production could also remain quite high this year given the recent improvement in crop condition ratings. Our goal is to examine the accuracy of the August USDA yield in relation to the final estimate.

Market participants had been using the 2012 crop year as an analog period for the current 2023/2024 corn crop, but this reference seems to now be lost. The chart below shows how the percentage of corn affected by drought in the U.S. decreased after reaching 70% in week 26, its highest value for the season.

At the same point of the season in 2012, this value was 41%. After three consecutive weeks of weather improvement across the main producing areas in the U.S., the drought currently “only” affects 55% of the corn production in the country.

Percentage of U.S. corn affected by drought in select years (as of July 18, 2023). Source: National Drought Mitigation Center, USDA

As a result, crop ratings have been improving in most regions during a critical period for plant development (as of July 23, 68% of corn production in the U.S. was silking).

The following chart shows the shift in trend that occurred after week 25 in the condition of the U.S. corn crop rated as good or excellent (G/E). After reaching its lowest value of the season four weeks ago (50%), the U.S. recently reported that 57% of the U.S. corn crop is currently rated as G/E. At this same point in the season in 2012, only 26% of the corn in the country was rated as in the same condition.

U.S. corn rated as good or excellent in select years. Source: National Agricultural Statistics Service

Due to this high variability, the corn market has been following weather forecasts intensely as a substantial amount of corn pollination will occur by Aug. 1.

In its May and June Supply/Demand reports, USDA incorporated a national trend yield projection for 2023 production. That forecast was lowered by 4 bpa, however, in the July report based on widespread dry conditions for key growing areas.

Starting next week and continuing into early August, USDA will conduct its first survey-based estimate of 2023 corn yields that will be released in the Crop Production report on August 11th. This will be combined with the latest harvested acreage estimate to arrive at a national production forecast.

Changes from August forecast to final yield

The following chart shows changes in the national average U.S. corn yield from the August report to the final estimate. Since 1991, the final yield has been higher than the August forecast 16 times and lower 16 times. The average increase has been 5.5 bpa ranging from 0.9 bushels in 1991 to 11.4 bushels in 2004. The average decrease has been 4.8 bpa ranging from 0.2 bushels in 2012 to 15.3 bushels in 1993.

With harvested acreage currently pegged at 86.3 million acres, the 2023 crop could, on average, increase 475 mbu or decrease 414 mbu from the August forecast.

Change in U.S. average corn yield from 1991 to 2022. Source: USDA

Uncertainty about yields this year is quite high given the recent improvement in crop condition ratings. Additionally, the end of the Black Sea agreement and the intensification of the conflict between Russia and Ukraine have brought more adrenaline to the market. The following chart highlights the increase in risk since mid-July, indicating that the volatility implied in corn option prices just reached the highest value of the last five years at this date.

Three-month implied volatility index – Corn. Source: Bloomberg

Without the agreement that facilitates the export of agricultural products from Ukraine through the Black Sea, other export routes will need to be used. However, significant logistical disruption is also likely to occur on highways, railroads, and riverways throughout Ukraine. If this takes place, the 19.5 MMT expected 2023/2024 exports from Ukraine may be at risk. That is nearly 10% of the world’s 2023/2024 corn exports, and demand will need to look for alternative supply.

The market appears confident that Brazil will harvest a record corn crop and that it is likely to consolidate its position as the main corn exporter of the current and upcoming seasons. If weather conditions continue to improve, the U.S. could also benefit from the current situation and increase its corn exports in the near future.

In this environment, it is critical to maintain market flexibility with your risk management strategies. As a student of the market, you know that price prediction is impossible.

Contact Advance Trading at (800) 747-9021 or go to www.advance-trading.com.

Information provided may include opinions of the author and is subject to the following disclosures:

The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.