The biggest guessing game in agriculture is to estimate the size of grain and oilseed crops. Estimates of acreage planted, yield per acre, and resulting total production affect the number of acres planted and prices before and during the growing season. Based on projected acres planted and trend line yields, estimates of total production at the start of the crop year were 10.8 billion bushels of corn, 2.9 billion bushels of soybeans, and 2.1 billion bushels of wheat. But we have had a difficult growing year for all crops and the estimates have changed.
The USDA recently adjusted estimated production of wheat up to 2.2 billion bushels even though the spring wheat crop is still somewhat in doubt. For example, North Dakota has received plentiful rainfall this summer and was on track to produce a bumper crop of spring wheat, but there are reports of disease damage to the wheat. Other areas that grow spring wheat are looking at potentially good yields. The bottom line is total production of wheat will probably not vary much from the USDA estimate. If that is true, wheat prices may weaken as we move toward the harvest of spring wheat.
Soybean price prematurely jumped up to the mid-seven dollar range a few weeks ago. In truth, it is still too early to adjust the 2.9 billion bushel crop estimate. Soybeans in many parts of the country are doing well, although it would be difficult to find a grower who would say his beans couldn’t use a good rain. As for the drought stricken areas in the Central Corn Belt, common sense would tell us that soybeans that are stunted will not do as well as if they had not been subjected to drought stress. The soybean is a very resilient plant that can bounce back from drought to produce good yields. However, as we move into August with low soil moisture, yield potential declines and upward pressure on price will increase.
Corn has been plagued by the most difficult growing season since 1988, especially in the heart of the Corn Belt. Favorable weather during planting time gave way to drought and searing temperatures at pollination time. Some growers in Illinois report less than an inch of rain since the first of June. Plant breeders deserve a great deal of credit for developing corn varieties that can survive such extreme growing conditions.
Survival is one thing, grain production is another. While estimates of corn production in the early days of the drought were too pessimistic to sustain to run price up to over $2.50 per bushel, current price is based on yield estimates that are probably too optimistic. Temperatures have moderated, but the forecasted rain turned out to be spotty. Some corn growers received good rain, however, in most areas, rainfall was much lighter than expected.
The problem now is to estimate total corn production where yields look like they are going to vary from trend line or better in some areas of the country to fields that will be abandoned because of low yields in other corn growing areas. It is making it very difficult to value the crop. Even sophisticated computer models are giving out yield estimates that look too high to people who have walked the fields. However, this week PurdueUniversity’s computer model predicted lower national average corn yield, about 138 bushels per acre, down from about 144 bushels earlier in the growing season. Even 138 bushels per acre looks optimistic when thousands of surveyed corn growers in Illinois reported drought damage of 30% or more.
A best guess estimate at this point is there will be less corn produced in the United States this year than people expect, and price will strengthen as yield estimates continue to be revised downward.
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