NAPERVILLE, Illinois, July 11 (Reuters) - After one of the driest-ever Junes in the U.S. Corn Belt, grain market participants already believe corn and soybean yields will not reach the government’s record-high targets.
It is always risky when all analysts are leaning the same way, though recent weather and the already-lofty nature of the corn yield seem to validate this thinking. However, lower yields may not be printed in the U.S. Department of Agriculture’s report on Wednesday.
All 25 analysts polled between Reuters and Bloomberg believe this month’s corn yield will come in below USDA’s trend-line of 181.5 bushels per acre. Two groups called for 180 bpa, the highest estimate, though the 25-analyst average is 176.4 bpa.
The trade pegs soybean yield at 51.4 bpa, below USDA’s trend of 52. Eight of 25 analysts expect the 52 bpa to stand on Wednesday, though soy yield may be more likely than corn to come in lower this month.
Aside from any yield adjustments, USDA’s July U.S. crop estimates will include June’s surveyed acres, which came in well above expectations for corn but well below for soybeans. That leaves room for corn yield losses on the balance sheet but keeps bean supplies tight either way.
MODEL SPECS
USDA’s corn and soy yield models, first employed in 2013, provide the official yield estimates until August, when USDA’s statistics service (NASS) issues survey-based estimates. The models rely primarily on weather in July and August but also adjust for extremely dry Junes.
The model states that the dry June variable is triggered when June precipitation is in the lowest 10% tail of its statistical normal distribution since 1988. For corn, the precipitation data is weighted by harvested area over an eight-state region, and seven states are considered for soybeans.
Both the corn and soybean calculation show June 2023 was the third-driest after 1988 and 2012, but neither precipitation total actually qualifies for the lowest 10% tail, likely since 1988 was so extreme. That may argue against lower yields on Wednesday.
A soy yield reduction is plausible since June rainfall over the soy region was right on the cusp of qualification, so it could come down to rounding and trigger the cut. However, there could be justification for lower yields outside the model constraints should USDA choose.
Data published on Tuesday confirmed June 2023 was the Midwest’s fifth-driest June since 1895 and driest since 1988. The Midwest in this case is a nine-state region surrounding Illinois and Indiana, different than USDA’s corn and soy regions.
But the first third of July has been devoid of heat and has featured wetter weather in many areas, which has stabilized or improved crop health.
USDA may have operated outside the model bounds in July 2019 when soybean yield was reduced by 1 bpa due to delayed planting. Although it exists for corn, the soybean model states that a planting progress variable is not used, so USDA may have some leeway to make a judgment call over June weather.
Regardless, do not overthink the results. If 181.5 is printed for corn on Wednesday, that does not necessarily mean that USDA officials believe the 2023 yield will be 181.5 bpa, but rather there was insufficient evidence to adjust that number this month per the existing methodology.
The August yields will be much more telling since they are survey-based and will incorporate the next couple weeks of weather. The September yields add field observations on top of the survey data. Karen Braun is a market analyst for Reuters. Views expressed above are her own.
(Reporting by Karen Braun Editing by Matthew Lewis)
