CHICAGO (Reuters) - (The opinions expressed here are those of the author, a market analyst for Reuters.)
The U.S. corn and soybean crops are in the worst condition since 2012, but the U.S. Department of Agriculture should still push new-crop production higher in its supply and demand report due at noon EDT on Wednesday.
Low crop ratings, regionally unfavorable recent weather, and the uncertainty over weather forecasts have some analysts convinced that USDA may adjust the 2017/18 corn or soybean yield accordingly in its July report.
Each year starting with its May report, USDA’s World Agricultural Outlook Board publishes trend-line yields in its monthly supply and demand reports for U.S. corn and soybeans, which for 2017 are 170.7 and 48 bushels per acre, respectively. This number is typically left untouched until the August update, when the yield is replaced with a modeled estimate from USDA’s statistics agency based on weather and other key inputs.
USDA has adjusted yields in July a handful of times in the past though, so it is not unprecedented, but the crop conditions and overall recent weather may not be severe enough this time around to warrant an adjustment for corn or soybeans on Wednesday.
Both planted and harvested acres for the country’s largest two crops will be higher on Wednesday than what was published in last month’s update, however. USDA always freshens up the July U.S. supply and demand tables with the new acreage numbers from its June 30 report, which this year will give production a boost.
USDA’s June acreage report revealed that soybean and particularly corn plantings were heavier than originally thought. Assuming no changes to yield on Wednesday and taking the acreage increases, 2017/18 corn production will rise 188 million bushels over the June figure, while the soybean harvest will rise a more modest 6.3 million bushels.
In the past 20 years, USDA has adjusted U.S. corn yield between June and July five times, and only three of them reflected a reduction – which would be the most likely scenario this year in the event of a yield modification.
The reasons for the July decreases in corn yield were based on weather, conditions, and acreage updates. In 2005, yield was reduced 3 percent because of low crop conditions. Some 65 percent of the 2017 crop was in good or excellent condition as of Sunday, and in the same week in 2005 the figure was 58 percent.
In 2008, yield was reduced fractionally due to a lower share of harvested area in the higher-yielding Corn Belt states due to heavy flooding, which was reflected in the June acreage report. Since nothing like this occurred this year, a yield adjustment based on shifting acres is also unlikely.
The most prolific July corn yield cut came in 2012 as USDA slashed off 20 bpa – amounting to 12 percent. The rapid decline in condition ratings – which were 40 percent good-to-excellent during the first full weekend in July – and the preceding extreme heat and persistent dryness led to the move.
None of the three scenarios described above appear to apply to U.S. corn in 2017, although if recent weather has been stressful enough in some of the primary growing regions, a yield cut could be warranted on Wednesday. But based on USDA’s past reasoning, it is unlikely.
USDA adjusts soybean yields in July less frequently, as much of the yield potential for the oilseed depends on August weather, particularly rainfall. Three changes have taken place over the last 20 years, all of them reductions.
However, two of those reductions amounted to 1 percent or less. Excessive moisture in 2008 delayed soybean planting and emergence, and the hairline move in 2004 was the result of acreage shifts from the June report. Neither of these scenarios apply in 2017.
USDA chopped soybean yields over 3 bpa – or 8 percent – from June to July in 2012, and this was for the same reason as the corn reduction. The amount of soybeans in good or excellent condition dropped 2 percentage points to 62 percent this week, but it was 40 percent during the same week in 2012.
In the end, corn yield fell 26 percent from USDA’s trend-line in 2012, but it dropped less than half a percent in 2005 and 2008. Soybean yield fell 10 percent below trend in 2012 and 6 percent below in 2008, but they rose 6 percent in 2004. So even if USDA makes a reduction for either crop on Wednesday, it does not necessarily signal disaster.
Editing by Matthew Lewis