Aug 25 / Pedro Schicchi

Grains, Oilseeds and Livestock Weekly Report - 2023 08 25

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"August’s WASDE sees peak yield volatility for US corn and soybeans due to methodological changes by the USDA.
Recent hot and dry weather may affect soybean yields more than corn.
Conditions have improved since August's report. Thus, even with some deterioration in conditions, yields could potentially be spared from significant cuts.
Corn production is expected to remain near 10-year highs, but lower acreage and weather uncertainties are estimated to limit soybean production."

Production estimates for the US

As we approach the last weeks of August, the bulk of the weather market is now behind us. Figure 1 shows the standard deviation for US corn and soybean yields in each month’s WASDE (versus the previous one). We see the peak for both in August, because of the change in methodology – starting to use data from the ground as input, as opposed to the statistical model used before.

After this point, standard deviations drop but don’t disappear, and, importantly, corn’s std. dev. drop faster than beans’. That is because, by the time August’s report is issued, the most sensitive stages of corn development are already passed, while soybean’s usually take place in August.

Speaking of weather, hot and dry weather took over in the 2H of this month, as opposed to the more benign pattern seen before. Due to the aforementioned reasons, this factor is thought to be more impactful to beans than to corn.

Image 1: Standard Deviation of US Yield estimates in each WASDE Report (%)

Source: USDA, Hedgepoint

Image 2: Temperature Anomaly – Aug 22 to Sep 4 (°C from normal)

Source: NOAA, Hedgepoint

Conditions and Yields

Well, since most part of the weather market months have passed, let’s talk about the balance it left to us so far. Do not be mistaken, this will still be a below-potential crop in the US in terms of yields, conditions say so. However, it will not be as catastrophic as it could have turned out to be in case June’s weather persisted throughout the summer.

We established the weather took a turn for the worse in the latter half of August, and that could have an impact on yields, especially of soybeans. In turn, that is most certainly going to lead to a cut in the next WASDE, right? Well, not necessarily.

Looking at the evolution of the condition index, we see that soybeans saw an improvement since the weeks when farmers were being surveyed for the August report.

These poor climatic conditions are likely to drag the index down. However, it may be the case that, by the time surveys are taking place for the September report, conditions are back to where they were when the last report was in the making.

If we take conditions to be a good predictor of yields, which is an assumption in and of itself (though generally a good one), it will mean that farmer’s prospects of yields may not have as much “reason” to be trimmed down as it seems at first.

Image 3: US Corn – Condition Index

Source: USDA, Hedgepoint

Image 4: US Soybean – Condition Index

Source: USDA, Hedgepoint

Production Estimates

The US corn crop is expected to be below potential, but yields may not be as affected by this recent wave of damaging weather. Besides, “below the potential” does not equal a bad crop.

The trims to yield were made in relation to the 180+ bu/ac trend. But still, 174-175 is an average yield, historically speaking. Additionally, one must recall that the area planted with corn this year was huge. Thus, even with the lower numbers in our yield range (Figure 5), production in the US should still be very close to the 10-year highs. Our current estimate is 15.062M bu, but the best/worst case scenario could be between 14.96-15.16B bu.

On soybeans, the picture is a bit different. For starters, the scenario with acreage is the exact opposite. The area is on the lower side this year, which limits production even with good yields (Figure 6).

Given the improvement in conditions seen in the first half of August, we estimate the yield to be slightly higher than that of the last WASDE. Still, that’s pending the impact that the hot and dry weather will have on crops. Our current estimate is 4220M bu.

Image 5: US Corn – Area, Yield and Production (M ac, bu/ac, M bu)

Source: USDA, Hedgepoint

Image 6: US Soybean – Area, Yield and Production (M ac, bu/ac, M bu)

Source: USDA, Hedgepoint

In Summary

Yields are still being debated, and the traditional ProFarmer crop tour is providing some insight into that - as well as possibly some volatility to prices. However, for both soybeans and corn, all our scenarios point to the same message: We should expect a good output of corn, but a more modest/small one for beans.

Weekly Report — Grains

Written by Pedro Schicchi
Reviewed by Alef Dias


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