Is the Trade Looking for Too Much of a Yield Reduction?

Is the Trade Looking for Too Much of a Yield Reduction?

Aug 08, 2017

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

As we get ready for the USDA’s August World Agricultural Supply and Demand Estimates (WASDE) report all eyes will be on corn and soybean yields.  Yields are a huge part of the production equation and the August report is likely going to set the tone for months to come.  With the average trade guesses looking for an almost 5 bushel an acre reduction in the national average corn yield is the trade looking for too much?

The trade guesses themselves can be a little tricky.  It seems that when the big 3 news outlets ask for estimates it is a little unclear if they are looking for what the USDA might say on this particular report or if they are looking for a final yield estimate.  We participate in the surveys and we provide our estimate for what we think the USDA will say on the report but some of the respondents might be submitting estimates for the final number.

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This makes a difference for two reasons:  For one, if weather gets better our yield estimate can still go back up.  Secondly, (and partly because of #1) the USDA tends to be conservative, at least in recent years, because they do not want to overshoot the mark.  So, in the case of this year, it could be the case that some of the estimates are lower then what the expectations are for this report.

A year that we have all been making comparisons to when it comes to crop conditions and yield expectations is 2011.  Now, it is important to note that there were a lot of very different factors in 2011 compared to 2017 and that the comparison should be limited to crop conditions and yield potential.  This year, similar to 2011, crop conditions started near 70% good to excellent and dropped to 60% or below with the biggest drop coming during the key moisture sensitive time of pollination.  This makes 2011 a likely analogue year to make comparisons to, and in 2011 the USDA aggressively dropped yield on both the August and September reports only to have to reverse themselves and move yield higher again by 4.6 bushels an acre for…

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