A look at slumping corn prices would suggest that a huge US harvest is a certainty, but crop data from previous bumper years shows there is a roughly 50 percent chance that come September, yields could be lower than current forecasts. The US Department of Agriculture (USDA) rated the corn crop as the second-best ever as of July 17 in its weekly report on Monday, sparking a sell-off in Chicago Board of Trade futures as the crop is now passed early development phases with little stress from adverse weather.
The biggest investment funds have already factored in a large crop according to latest figures from the Commodity Futures Trading Commission, which show they have sold off 95 percent of their net long stake in corn futures and options since mid-June. Corn futures have now fallen 22 percent from the two-year highs hit just a month ago and closed on Tuesday at $3.48-1/2 a bushel for December delivery.
The USDA said on Monday that 76 percent of the corn crop was good to excellent as of July 17, up 1 percentage point from the start of the month and matching the second-highest mid-July ranking on record. But strong mid-July ratings for the crop do not always correlate with final yields. Since 1993, in years with the 10 highest mid-July ratings, final yields have fallen from the government's July estimate five times and risen five.
Market moves also have been a mixed bag in the 10 years with the best-rated crop, rising five times from mid-July to mid-September, when combines begin rolling, and falling five times. The market moves have not always correlated with the yield changes. Adverse weather, ranging from extreme heat to heavy winds and flooding, can conspire to take the top off yield potential even late in the crop's growth cycle. The latest weather outlook calls for temperatures that may top 100 degrees Fahrenheit (38 C) in parts of the Corn Belt this week - just as much of the crop passes through its key pollination stage. Farmers say this could cause severe damage to yield prospects.
In central Nebraska, low soil moisture levels provide little protection to the crop from scorching temperatures, said Craig Frenzen, a farmer in that area who planted 2,000 acres of corn this year. "We are very short of rain," Frenzen said. "If we get the heat that we are talking about we will have very little ... corn to harvest." But even if the government's current projection of an average yield of 168 bushels per acre for corn is reduced, ample supplies of grain around the world provide a big cushion for the corn market, said Arlan Suderman, chief commodities economist at INTL FCStone.
Yields would have to fall below 160 bushels per acre - unlikely given current conditions - to pressure the balance sheet, Suderman added. "The risk of that has not been eliminated but it is going significantly down," Suderman said. "Enough of the crop is made to eliminate the need to ration supplies."
Comments
Comments are closed.