The prospect of bumper crop yields has been driving down corn prices in the United States. But does the reality in the field match this expectation?
— Agriculture (@TRAgriculture) February 17, 2017
Forecasting crop harvests is challenging at the best of times, but this year’s (2016) season appears to highlight just how subjective this process can be.
The U.S. corn market has been pricing in yields in some states several bushels per acre higher than previous records set in 2014, with a national yield in the region of 170 bushels per acre.
Catch up on all the action with #lanworthcroptour
— Agriculture (@TRAgriculture) August 3, 2016
As well as positive crop condition scores, these estimates have been supported by the view that much of the mid-July heat was delayed until after pollination.
But there are other factors at play, which expert Lanworth analysts at Thomson Reuters addressed in a crop tour covering 3,000 miles and six states.
During the annual inspection at the start of August, they collected more than 200 individual yield samples.
Their analysis points to yields near or below trend at 167 bushels per acre nationally.
The reason for this less optimistic scenario is that high night-time temperatures in July negatively affected corn pollination and grain fill, causing tip back and kernel abortion, as well as a shorter, less effective grain fill period.
This also means that kernel size is unlikely to reach full potential.
A recap of the season shows that the price of corn dropped in March following prospective planting estimates at a high level of 93.6 million acres.
Prices rose over subsequent months due to adverse weather in Brazil and reached a high for the year as a result of strong June temperatures in the United States.
However, this surge proved to be short-lived due to a combination of heavy rainfall, high crop condition ratings and the June U.S. Department of Agriculture acreage report increasing to over 94 million acres.
Prices have stayed suppressed, supported by the argument that pollination had largely occurred by the time of the usual July heatwave.
However, in Illinois, Iowa, Nebraska, Minnesota, and Indiana, which constitute 60% of total corn supply, 20% to 45% of the crop was still undergoing pollination. Elsewhere in the United States, pollination still had not reached 50%.
Based on the key findings during the U.S. Crop Tour in Illinois, Minnesota, Ohio, and Nebraska, the Lanworth team at Thomson Reuters had some different conclusions:
Illinois (61 samples of agricultural land)
Corn conditions looked to be close to trend, but continued heat and localized early-season stresses put in doubt the possibility of a bumper crop.
Minneapolis (50 samples)
Crops ranged from fair to good with tip back impacting the majority of fields. The Lanworth team also saw fields with smut, and one with hail damage. Overall, the crop looked to be in pretty good condition.
Ohio (47 samples)
Drought stress in the form of tip back and kernel abortion were present. The Lanworth team reported a great deal of variation from one field to the next, with the stage being a mixture of late blister and early milk. The average crop was well below trend.
Nebraska (48 samples)
Corn conditions were consistently good to excellent. Fields were uniformly tall and there were no apparent issues. However, after looking closely at the fields, some corn plants were not very tall and tip back was common, though not severe, to see.
In the chart above, the orange bar represents the average of all samples per state while the grey bar represents trend yield by state. The national yield tends to be lower than the yields reported in the six states visited on the tour as those states are usually the highest yielding.
One of the major arguments supporting high estimates is crop conditions. The four graphics below illustrate this point very well. In Illinois, Iowa, Indiana, and Minnesota, crop conditions are much closer to 2014 than they were 2010. Actually, conditions this year now exceed 2014 in every case.
However, condition scores are highly dangerous for inferring yield.
It’s essentially a “windshield tour” where there isn’t a standard methodology for contributors and estimates of what’s poor, fair, good or excellent are highly subjective.
In a year like this where there has been high rainfall in most places, the vegetation is going to look lush and green. Crop conditions, however, cannot capture what is going on inside the field. They cannot capture tip back, kernel abortion, and lower grain fill.
Looking at the top six corn production states, there is definitely a positive relationship between a higher yield and higher condition scores.
However, the relationship is very, very weak. The vast majority of the variance is explained by something other than condition scores. In other words, condition scores are not the dominant factor on yields.
In fact, in most states, the highest condition scores often result in low yields. The results are the same or worse if we use other categories of conditions like fair or poor.
So, does reality in the field match market expectations?
Though tough to answer, current estimates from the field indicate yields near or below trend at 166 bushels per acre nationally.
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