Grain ‘trade’ at risk of low-balling U.S. soybean yields: Maguire

Chicago / Reuters – At 47.1 bushels an acre, last month’s soybean yield estimate from the U.S. Department of Agriculture was a new all-time high. And the average trader estimate for the USDA’s November projection is higher still, at 47.608 bushels.

Even so, the long-term relationship between corn and soybeans suggests current soybean yields remain relatively low in comparison to corn yields, which also look set to hit a new record following a good growing season throughout the Midwest, Mid-South and Northern Plains.

Indeed, the latest USDA estimates would place soy yields at their lowest relative to corn since 2009, which would go against the broad narrative told lately by yield monitor readouts of both crops across the country’s most productive regions.

Were the USDA to rectify this soybean/corn imbalance while keeping corn estimates steady, it would have to boost the soybean yield to close to 49 bushels an acre, marking a roughly 4 percent increase from its last estimate, and surpassing even the loftiest trader projections.

A more likely scenario would be for the USDA to trim its corn yield slightly, while nudging soy closer to the 48 bushel mark, although that would still likely be a bearish shock to most of the soybean market.

Uncharted territory

With both corn and soybean yields already at all-time highs, no traders, agronomists or crop forecasters are familiar with the true scale of the crops now being harvested. So we are having difficulty making a fair and sensible estimate of the likely yield per acre for each crop.

For corn, crop assessors were able to determine in July that the combination of high plant populations and hefty ear weights would set the stage for a final yield above the 170/bushel mark – a threshold never before breached.

So when the USDA lifted its corn yield projection to 171.7 in September from 167.4 in August, most market participants had already braced for it and in some regards had expected an even higher number.

That higher total emerged the following month as widespread early harvest readouts became available and confirmed that a true bumper crop was on our hands.

Yet in the weeks since that last report, it has become clear that overall corn yields are not quite as uniformly massive as projected, leaving the door open to a potential corn yield reduction come the release of the final crop balance sheet in January.

Soybean crop forecasters have had less time to assess the abundance of the 2014 crop. Widespread bean maturity was not reached until mid to late August, a full month after corn. The first time the true record-setting yield potential was incorporated into USDA crop reports was in September (46.6 bpa), just as the earliest harvest runs were taking place.

The USDA followed up with a 0.5 bushel per acre yield increase in October – the first national average above 47 bushels an acre – but a lingering sense of further potential remains as the market awaits the USDA November release.

Some of that upside potential is reflected in trader estimates ahead of Monday’s crop report, with a third of the 24 entities polled by Reuters estimating a 48.0 yield or higher. And the highest estimate recorded in the poll – 48.7 – does come close to what history suggests the soybean yield average could be if the corn yield remains unchanged from a month ago.

Yet the fact that most estimates remained below 48.0 suggests trepidation among crop forecasters about pushing yield expectations even deeper into uncharted territory.

Whether the USDA feels the same trepidation next week remains to be seen, but its own data suggests that, if its corn yield projection is correct, the soybean crop has plenty of room to surprise on the upside come the final yield assessment in January.

The author is a Reuters market analyst. The opinions expressed are his own.

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