August 1st was the nominal date for USDA’s initial take on 2006 crop yields. Actually, enumerators were in your fields the prior week, and will finish up this week collecting their statistics. We’ll all find out together on Friday, August 11, when the first objective field survey results are released. Between now and then numerous other surveys will be revealed by the grain trade, based on fewer surveys and rougher calculation methods. But the guesstimates may be more difficult to make this year, as a significant portion of the Western Corn Belt and Great Plains are in a yield freefall.

Two of Extension’s premier outlook specialists, Darrel Good at the University of Illinois and Bob Wisner at Iowa State University, each weighed in on the weather issue this week. Both are expressing concerns about the continued deterioration of the crop, below trend yield values, while the trade is expecting corn yields at or slightly above trend yields.

Wisner says, “Western Corn Belt crop condition ratings have fallen sharply in the last three weeks, with the declines occurring in Minnesota, South Dakota, Nebraska, Kansas, North Dakota, Missouri, and Iowa.” In 2005, those states produced 54% of the US corn crop, but Illinois and Missouri were suffering from drought. For the most part, Wisner says Iowa crops look to be in good shape, but heat and lack of moisture have created stress spots. And he adds, “The July 30 crop condition ratings suggest the August 11 crop report could forecast the US average corn yield somewhat below the current official projection of 149 bushels per acre. Recent price behavior suggests the market is expecting a US yield in the 149-151 bushel range.”

More attention is being given to the weekly crop condition ratings, and with a growing history of crop conditions on certain dates, yields can be better predicted. Wisner says the Dakotas are showing the worst, with parts of Iowa, Wisconsin, Minnesota, and Nebraska worse than 2005 when crop conditions were compared.

Both Wisner at Iowa State and Darrel Good at Illinois note that crop conditions this year might be declining, but they began at higher values than at the same time last year. Good says, “Corn and soybean crop condition ratings declined each week for the four weeks ended on July 23. As of that date, 59% of the corn crop was rated in good or excellent condition, compared to 53% on the same date last year. Further deterioration in crop ratings was expected to be reflected in the July 31 report, particularly for western growing areas, due to high temperatures and continued dryness in some areas. On July 23, 54% of the soybean crop was rated in good or excellent condition, the same as last year, with further deterioration expected to be reflected in the July 31 report.” For the record, there was further deterioration reported by USDA.

Good says, “The subjective nature of the crop condition ratings means that it is not always a good predictor of yield potential. The August yield forecasts will provide the benchmark for the market to judge the potential impact of August weather on final yield estimates. Recent high temperatures and prospects for another round of heat in the second week of August will stress crops in areas of low soil moisture. The amount and coverage of precipitation in early August will be extremely important for yield prospects.” Keep in mind, USDA yield projections are made based on conditions on August 1st (or thereabouts) and will not include any upward or downward adjustment resulting from the anticipation of weather for the balance of the growing season.

If corn falls below trend yield as Good and Wisner hint it may, an interesting supply scenario may result. Good says exports have been strong enough to surpass the 2.1 billion bushels USDA is projecting. And with pasture deterioration and high feed wheat prices, more early corn may be destined for feedlots than expected. Subsequently, the carryover at the end of August 2007 may diminish more than the market expects.

If that is the case, Darrel Good says, “ Prices of both (corn and soybeans) contracts may continue to recover from the lows of last week under the influence of a high rate of consumption and uncertainty about crop size. A surprise in the August 11 reports or a significant decline in crop conditions may be needed, however, for prices to trade above the recent highs.” Those were $2.88 for corn in May and $6.40 for beans in July.

Wisner’s price outlook says, “Early indicators show a strong likelihood that cash corn prices will show a larger than normal seasonal increase into the spring and summer of 2007 in response to expanding ethanol demand. Potential cash market storage returns for soybeans are less certain and will be influenced by the actual level of South American soybean plantings this fall and early winter, as well as South American weather.”

Summary:
As the Cornbelt and the grain industry prepare for next week’ crop report, Extension Outlook Specialists say crops may not reach trade expectations, due to heat and moisture stress in the Western Cornbelt. Recent demand for corn, in particular, has been stronger than anticipated, and the 2 billion bushel inventory expected at the end of this month may be less than that. However, both indicate that a low yield surprise will have to occur in the crop report, for recent highs to be surpassed.