The corn market is following weather forecasts intensely as a substantial amount of corn pollination will occur by August 1st.
In its May, June and July Supply/Demand reports, USDA incorporated a trend yield projection for 2021 production. An updated estimate of harvested acreage from the Acreage report was utilized in July. Starting last week, however, and continuing into early August, USDA will conduct its first survey-based estimate of 2021 corn yields that will be released in the Crop Production report on August 12th. This will be combined with the latest harvested acreage to arrive at a national production forecast.
Our goal is to examine accuracy of the August USDA yield in relation to the final estimate.
The chart shows change in the national average U.S. corn yield from the August report to the final estimate. Since 1991, final yield has been higher than the August forecast 15 times and lower 15 times. The average increase has been 5.7 bushels per acre (bpa) ranging from 0.9 bushels in 1991 to 11.4 bushels in 2004. The average decrease has been 4.9 bpa ranging from 0.2 bushels in 2012 to 15.3 bushels in 1993.
With harvested acreage currently pegged at 84.5 million acres, the 2021 crop could—on average—increase 482 million bushels or decrease 414 mbu from the August forecast.
A tale of two crops
Uncertainty about yields this year is quite high given extremely divergent crop conditions across the country. For example, USDA reported the percentage of corn rated “Good” or “Excellent” as of July 25th was 73% and 76% in Indiana and Ohio, respectively. Conversely, only 38% of the Minnesota crop was included in those categories with South Dakota even lower at just 30%.
History shows soybean yields can still change significantly before harvest. There have been years when bean crop condition ratings have been very high in late-July, only to have dry weather and/or pests decimate yields. Alternatively, there been instances when an average looking crop rebounded to generate higher-than-expected yields due to ideal weather in late summer.
The soybean yield chart reviews the change in the national average U.S. soybean yield from the August report to the final estimate. Since 1991, the final yield has been higher than the August forecast 17 times and lower 13 times. The average increase has been 2.2 bpa ranging from 0.2 bushels in 2007 to 4.3 bushels in 2005. Alternatively, the average decrease has been 1.6 bpa ranging from 0.3 bushels in 2017 to 5.5 bushels in 2003.
With harvested acreage currently pegged at 86.7 million acres, the 2021 crop could--on average--increase 191 mbu or decrease 139 mbu from the August forecast.
Soybean crop conditions have deteriorated since ratings were first reported in early June. Regional differences in crop conditions are apparent, however, suggesting weather over the next 4-6 weeks could still significantly impact final yield. Plus, there is heightened uncertainty about the possibility of additional double crop soybean acreage in relation to the USDA’s most recent projection.
This is a recipe for increased price volatility—and potential opportunity—ahead of harvest. As always, your Advance Trading advisor stands ready to help implement customized risk management strategies for your operation.
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