Posted by: usset001 | July 17, 2014

U.S. soybean conditions point to a good crop

US Soybean Conditions 2014Like many grain analysts, I like to track crop conditions and the weekly updates. The latest report indicates that soybean conditions throughout the U.S. are very good relative to the average year. Current conditions are even favorable in comparison to an average of the four best years since 1990 (1992, 1994, 2004 and 2005, based on yields relative to trend).

Before we get too excited, I think we should remind ourselves that the soybean crop has a long ways to go before it is made. Case in point: 2003. Soybean crop conditions at this time in 2003 were nearly as good as current conditions, but August turned dry and the 2003 crop was a poor one. That said, it is noteworthy that current conditions are better than all years going back to 1994, as of mid-July. It’s a great start!

Posted by: usset001 | July 9, 2014

Minnesota spring wheat conditions and yield potential

MN spring wheat yieldsThe Minnesota trend-line yield for spring wheat in 2014 is 52.7 bu./acre (based on a simple linear regression of the last 30 years). Unless we enjoy some sort of miraculous recovery over the next two weeks, the Minnesota wheat crop is heading for yield well below trend. As of July 6, the Minnesota spring wheat crop has a crop conditions index (CCI) of 328 (see my previous post for an explanation of the CCI). This is the 4th lowest CCI recorded for the Minnesota spring wheat crop in early/mid-July since USDA started tracking crop conditions in 1986. Our Minnesota spring wheat crop has had too much rain, and a below average crop is on the horizon.

To calculate the Minnesota spring wheat CCI as of July 6, I did the following math…
(5% excellent * 5) + (36% good * 4) +(45% fair *3) + (9% poor * 2) + (5% very poor * 1) = 328

MN wheat conditionsConditions as of early/mid-July were worse in 1988 (CCI of 179), 1995 (311) and 2002 (318). Yields in 1988 were disastrous. Yields in 1995 and 2002 were 24% and 26% below trend, respectively. Maybe a better comparison is 1987 and 1999, when the CCI of 328 was almost the same as 2014. 1987 managed to eke out an above average yield, while yields in 1999 were 10% below trend. My best guess for Minnesota wheat yields in 2014 is 40-45 bu./acre corn.

For the record, the highest CCI ever recorded for the Minnesota spring wheat crop was 428, recorded in late June, 2003. Minnesota spring wheat yields averaged 58 bu./acre that year, which remains the highest average yield ever posted in Minnesota.

Posted by: usset001 | July 9, 2014

Minnesota soybean conditions and yield potential

MN soybean yields 1984-2014For the current crop year, the Minnesota trend-line yield for soybeans is 43.2 bu./acre in the current crop year. This is based on a simple linear regression of the last 30 years. As of July 6, the Minnesota soybean crop is sporting a crop conditions index (CCI) of 359, somewhat below average for this time of year (see my previous post for an explanation of the CCI). Despite the below average CCI, I’m holding out hope for a trend-line yield for 2014, assuming some favorable growing conditions over the next 4 weeks.

To calculate the Minnesota soybean CCI as of July 6, I did the following math…
(8% excellent * 5) + (53% good * 4) +(31% fair *3) + (6% poor * 2) + (2% very poor * 1) = 359

MN soybean conditionsAs of early/mid-July, this index has been as low as 269 and 239 in 1988 and 1993, respectively. Unlike corn, a CCI index for soybeans above 400 is uncommon for this time of year, occurring just once (404 CCI in 1994, the first time Minnesota soybean yields averaged 40 bu./acre).

For the record, the highest CCI ever recorded for the Minnesota soybean crop was 420, in the late August, 2010. Minnesota soybean yields averaged 45 bu./acre in 2010, the second best yield average ever posted (vs. 45.5 in 2005).

Posted by: usset001 | July 9, 2014

Minnesota corn conditions and yield potential

MN corn yields 1984 2014Based on a simple linear regression of the last 30 years, Minnesota trend-line yield is 175 bu./acre in the current crop year. However, Minnesota corn conditions (CCI of 367 – see below for an explanation) as of July 6 are average, at best, and modestly below average if we focus on conditions over the past decade. My best guess at this point is an average yield of 165-170 bu./acre in Minnesota.
The crop condition index (CCI) is based on weekly USDA crop ratings. It’s a conversion of the crop conditions into a single index. The CCI is calculated as follows…
(% excellent * 5) + (% good * 4) +(% fair * 3) + (% poor * 2) + (% very poor * 1) = CCI
To calculate the Minnesota corn CCI as of July 6, I did the following math…
(14% excellent * 5) + (50% good *4) +(27% fair *3) + (7% poor * 2) + (2% very poor * 1) = 367
MN Corn ConditionsAn index of 500 reflects a crop in excellent condition, 400 is good, 300 is fair, 200 is poor and 100 is very poor. As of early/mid-July, this index has been as low as 230 and 244 in 1988 and 1993, respectively. A CCI index above 400 is not uncommon for this time of year, occurring most recently in 2009 and 2010. The last two years we had a MN CCI index for corn at 367 or lower were 2013 (363) and 2007 (367), and both years ended with below trend yields. However, as recently as 2004, the MN CCI corn index was at 361 in early/mid-July and we ended the year with a new MN yield record (159 bu./acre vs. 151 trend). Conditions today are important, but matter less than growing conditions as they unfold over the next few weeks.

For the record, the highest CCI ever recorded for the Minnesota corn crop was 438, in the last-half of July, 1994. Minnesota corn yields in 1994 set a state record of 142 bu./acre, 15 bushels better than the previous record.

Pipestone MN 11 th commandmentFor producers who still hold 2013 corn or soybeans in storage, you are less than two weeks from breaking the 11th Commandment of Grain Marketing; “Thou shall not hold unpriced corn or soybeans in the bin beyond July 1.”

Two forces are at work here. First is the tendency for new crop futures prices to trade lower during the summer months. Dec’14 corn and Nov’14 soybean futures are off 20 cents/bu. since the start of June. The second force is basis, and the tendency for cash prices to lose ground on futures prices during the summer months.

Like every price tendency in grain markets, the 11th Commandment is not right every year because nothing is 100%. You only have to go back to the summer of 2012 to find an example of rising grain prices during the summer months. On the other hand, it was just last year when cash corn and soybean prices fell $2 and $3/bu., respectively, from early July to harvest.

The accompanying chart of soybean prices in Southwestern Minnesota says it all. Soybeans prices, on average, decline 10% (or more!) from early July to harvest. Spot soybean prices are currently close to the $13.50/bu. mark, with Nov’14 futures pointing to a cash price of $11.00-11.50/bu. at harvest.

The risk/reward trade-off on corn or soybeans in storage does not look good right now. Pay attention to the 11th Commandment of Grain Marketing!

New Crop CornThe month of May was a tough one on new crop corn prices, as the Dec’14 contract dropped 42 cents from the first day of the month to the last. Should we be surprised? It is that the time of the year – the growing season can send prices reeling or roaring, depending on weather conditions.

I pulled together a history of volatility in the new crop (December) corn contract from 1990 forward. To be specific, I analyzed the twelve months prior to the December contract delivery (December of the prior year thru November of the contract year, e.g. for the Dec’06 contract, I analyzed monthly price changes from December 2005 thru November 2006). I analyzed the data two ways. First, I looked for price changes greater than 10% from the price at the start of each month. I also looked at the monthly price range – the difference between the maximum and minimum closing prices within each month.

(It’s worth reminding ourselves that 10% of $2.50 futures ( see 1998-2002) is 25 cents/bu., while 10% of $4.50 corn (see this year) is 45 cents/bu., and 10% of $7.00 is 70 cents/bu.)

Concerning price changes from the first to the last day of the month…

  • From the first day to the last day of each month, price moves of 10% or greater occurred in 34 of the 194 months considered, or 12% of the time. That works out to just one or two months each year.
  • Such a broad look at all months glosses over the tendency for big months to cluster. There were 9 years with no months registering a 10% price move – the most recent year was last year (the Dec’13 corn contract). There were six years with three or more months with big price moves (1996, 2004, 2008, 2009, 2010, and 2011).
  • Such a broad look at all months also glosses over the volatility of July. Price moves of 10% or greater, from the first day of July to the last day of July, occurred in 10 of the 24 months considered, or 42% of the time. From a crop development perspective, “July makes the corn crop” and that shows in the higher volatility in prices during this critical month. For the record, of the 10 months when closing prices moved more than 10% during July, 6 of the 10 years were lower price moves, and 4 of the 10 were higher. The most recent example is 2012, when Dec’12 corn futures started the month of July at $6.55/bu. and ended the month with a close of $8.05/bu.
  • Dec’14 corn is currently trading near $4.50/bu. For perspective, a price move of 10% in July points to prices close to $4.00/bu. (if favorable weather continues) or $5.00/bu. (if the weather Gods are angered).

Concerning the December corn contract price range within each month (the difference between the maximum and minimum closing prices)…

  • A price range of 10% or greater occurred in 82 of the 194 months considered, or 42% of the time. New crop price ranges of 10% or more or fairly common.
  • There were only two years since 1990 when no months registered a range of 10% or more (1993 and 1995). Would you like the most recent example of a month with a price range of 10% or more? In May of this year, the Dec’14 contract reached as high as $5.11/bu. and as low as $4.57/bu. – a 54 cent range or 10.8% of the price at the start of the month.
  • Once again, the month of July stands out. A price range of 10% or greater occurred during the month of July in 18 of the last 24 years, or 75% of the time. Price range of 10% or greater occurred close to half the years for the months of June, August and September. The growing season rules!
  • Should we be surprised if the Dec’14 corn contract displays a price range of 50 cents/bu. or more during the months of June, July and August? No.
Posted by: usset001 | May 20, 2014

2014 Pre-Harvest Grain Marketing Plans are posted

bullandbearIf there is such a thing as normal, 2014 is acting like a normal year. New crop prices for corn, soybeans and wheat have shown some life this spring. Dec’14 corn is off 40 cents in the past two weeks but remains 25 cents higher than the January lows. Sep’14 spring wheat futures are $1/bu. higher than the start of the year, despite losing 50 cents/bu. in the last two weeks. Nov’14 soybeans, however, are the star. Prices are more than $1/bu. higher and, unlike corn and wheat, there has been no give back in recent weeks. Nov’14 soybeans at $12.50/bu. and Sep’14 wheat at $7.60/bu. remain at levels above my minimum pricing objectives. New crop soybean prices remain very attractive relative to corn.

My 2014 pre-harvest marketing plans have been updated and you can find them here.

Posted by: usset001 | May 7, 2014

Dec’14/Jul’15 Corn Futures Spread

Note the strong tendency for the December/July corn futures spread to widen from spring to harvest.

Note the strong tendency for the December/July corn futures spread to widen from spring to harvest.

I have a book titled “The Encyclopedia of Commodity and Financial Spreads.” The book examines the history of a large number of seasonal futures spreads. A number of these agricultural seasonal spreads rely heavily on just one seasonal price move – the powerful tendency for December corn to trade lower from spring to harvest. The December/July corn futures spread is driven by the same powerful tendency.

(Let’s be clear about the December/July corn spread I am referring to. Today, I am talking about the new crop December contract, i.e. the Dec’14 contract, and the “red” July contract, or the July contract trading more than one year out, i.e. the Jul’15 contract. The nearby July contract, i.e. the Jul’14, is not a part of this discussion – the Jul’14/Dec’14 spread is an old crop/new crop spread, and a completely different animal).

The Dec’14/Jul’15 corn spread is currently trading in the neighborhood of 19 cents/bu., i.e. there is an 19 cent “carry” from the Dec’14 contract (currently about $5.05/bu.) to the Jul’15 contract (currently about $5.24/bu.). This spread is referred to as either an intracommodity (within the same commodity) spread or as an interdelivery (between delivery months) spread. This spread has a very strong tendency to widen from spring to harvest, i.e. the carry from December to July gets larger. If the corn crop develops normally, I expect a today’s Dec’14/Jul’15 spread of 19 cents to widen out to 25-30 cents by harvest.

The table below shows a 24-year history of the spread. Since 1990, the December/July spread has widened in 20 of 24 years (83% of the years) from May 1 to October 1. That looks like great odds, but I can make it even better. There were five years – 2001, 2002, 2009, 2010, and 2012 – when the spread was already very wide on May 1 (I defined very wide as more than 200% of interest costs). Eliminate these five years and you find that the December/July spread widened in 18 of 19 years (95% of the years) from May 1 to October 1.

Dec-Jul Carry Dec-Jul Carry
Year 1-May 1-Oct change
1990 9.75 13.25 3.50
1991 14.75 16.25 1.50
1992 17.00 21.25 4.25
1993 13.25 15.25 2.00
1994 9.50 23.75 14.25
1995 15.50 11.25 (4.25)
1996 9.25 22.50 13.25
1997 14.00 18.50 4.50
1998 17.50 26.25 8.75
1999 17.50 23.00 5.50
2000 16.25 26.75 10.50
2001 24.25 24.50 0.25
2002 19.00 11.25 (7.75)
2003 13.75 16.75 3.00
2004 2.75 24.25 21.50
2005 17.00 27.25 10.25
2006 18.75 28.50 9.75
2007 21.00 35.25 14.25
2008 21.50 41.75 20.25
2009 28.50 29.75 1.25
2010 28.00 21.75 (6.25)
2011 26.25 26.75 0.50
2012 27.00 (8.25) (35.25)
2013 25.50 27.50 2.00
2014 19.50
1990-2013 average 17.81 21.88 4.06
1990-2013 average* 15.83 23.47 7.64

 *calculated without 2001,02,09,10, & 2012

How can a producer and seller of corn use this information? It looks tempting, but I am not recommending a speculative spread position in the futures market. However, if you are interested in making pre-harvest hedge sale of corn with futures contracts or with an HTA contract, stick to the Dec’14 contract. Producers with storage capacity on the farm might be tempted to assume storage of their corn at harvest and sell the Jul’15 contract. However, by selling the December and rolling the hedge or HTA contract forward next fall, you open the possibility of a wider carry and an extra 5-10/bu.

Posted by: usset001 | April 4, 2014

Delayed Planting and Corn Yields in Minnesota

cornrawIt is early April and already there is a lot of chatter about getting the crop in the ground in a timely manner. The winter was very cold, and the frost runs very deep. And over the past 24 hours, just about the time we thought we had the snow cover gone, Minnesota received the gift of 6 plus inches of heavy, wet snow. The concern is for another year of late planting, and a detrimental effect on corn yields. We have lots of numbers on Minnesota corn planting progress and yields – let’s look at them and see if we can make any sense of the data.

Studies show that late planting puts a drag on corn yields. I found a recent article from Jeff Coulter, Minnesota Extension Corn Specialist here. In a nutshell, Minnesota corn yields are optimized with planting dates of April 25 to May 10 (these are southern Minnesota conclusions). A rapid decline in corn yields would kick in when planting was delayed beyond mid-May. This is what the studies say – how well to the conclusions hold up over time?

I reviewed USDA Crop Progress reports from 1979-2013, focusing on corn planting progress in Minnesota. Crop progress reports are issued weekly and planting progress is estimated and reported every week the information is relevant. In most years, Minnesota has planting progress to report starting in the last ten days of April and ending in the first ten days of June. There are extremes. In 2012, USDA reported 1% of the Minnesota corn crop planted for the week ending April 8. In 1983, USDA reported the last 2% of the Minnesota corn crop planted during the week ending June 19.

Late planted years: I studied the planting progress reports and picked out four years – 1979, 1986, 1991 and 1996 – that stood out as late planting years in Minnesota. Each of these years had less than 80% (a range of 71-79%, to be exact) of corn planted as of the week ending May 24-30. For perspective, most other years showed 90-100% of the corn crop planted by this time. Figures in the table are bushels/acre.

MN trend yield    Actual yield     Actual vs. trend    Actual vs. trend (%)
1979         93.5                     100.0                           6.5                       7.0%
1986        108.2                   122.0                           13.8                      12.7%
1991         118.8                   120.0                           1.2                          1.0%
1996        129.4                   125.0                           (4.4)                      -3.4%
average 112.5                 116.8                         4.3                       3.8%

Despite late planting in these four years, Minnesota corn yields averaged nearly 4% above trend yields (my estimates of trend yields are based on a simple 30 year regression).

Early planted years: More years stood out as early planting years. What do the years these 11 years – 1987, 1988, 1998, 1999, 2000, 2003, 2004, 2005, 2007, 2010 and 2012 – have in common? In each of these years, the Minnesota corn crop was at least 85% planted as of the week ending May 10-16. Other years showed an average of 55% of the corn crop planted by this time.

MN trend yield    Actual yield    Actual vs. trend    Actual vs. trend (%)
1987                    109.3                    127.0                   17.7                          16.2%
1988                    111.9                       74.0                  (37.9)                     -33.9%
1998                   137.3                      153.0                  15.7                         11.4%
1999                   139.9                      150.0                  10.1                          7.3%
2000                   142.4                      145.0                 2.6                            1.8%
2003                    150.0                     146.0                (4.0)                        -2.7%
2004                    152.6                     159.0                   6.4                          4.2%
2005                    155.1                       174.0                 18.9                         12.2%
2007                   160.2                       146.0                 (14.2)                       -8.9%
2010                    167.8                       177.0                  9.2                           5.5%
2012                    172.9                        165.0                 (7.9)                       -4.6%
average           145.4                     146.9                 1.5                         1.0%

This is interesting! Minnesota corn yields averaged 1% above trend yields in the early planting years – worse than the late planted years. Clearly, 1988 is having a big impact on the average. Remove 1988 from the equation and you will still find that actual yields in the remaining 10 years averaged 4 % over trend, or the same as the late planted years.

What’s going on? Why does the data go against numerous studies that show early planting correlating with higher corn yields? One issue may be as simple as sample size. I have, after all, just four years to look at for late planted years.

The real issue can be found in the Latin phrase, “ceteris paribus” which means “all other things being equal.” Studies that examine planting dates and corn yields hold all other factors equal. The corn varieties used, the fertility of the soils, the number of growing degree days and moisture are all the same within the year (or years) of the study. Actual results from one year to the next are not ceteris paribus – growing degree days and moisture can vary widely from one year to the next. I’ll take this a step further and note that the most likely reason the early planting years were early was because the spring was warm and dry. Warm and dry springs make for early planting. However, if warm and dry persists, it can create crop development and maturity problems later in the growing season (and 1988 was the extreme example). A similar line of reasoning holds for the late years. Why were farmers late getting the crop planted in 1979, 1986, 1991 and 1996? I suspect it had something to do with a wet spring and, as the saying goes, rain makes grain.

In an ideal world, the corn crop would be planted early and ample summer rains combined with a long growing season would lead to a bumper crop. The world is rarely ideal. Today’s case in point is western Minnesota, where they need to replenish moisture in the soil if they want a good crop in 2014. I bet they’ll take this snow storm (and another) and a later planting date if it means replenished soil moisture.


soybeansiconBefore the days of nearly 24-hour electronic markets, the “morning call” was very important and traders put a great deal of effort into trying to figure out if the market would open 3 or 5 or 7 cents higher. One morning I asked a fellow pit trader at the Minneapolis Grain Exchange, “What’s the call this morning, up or down?” He flatly replied, “Yes – the market will go up or down.” He was not very helpful.

I’m developing the same call for the planting intentions report on Monday. On the one hand, I see that the trade has big expectations for soybean acres, up 4-5 million acres and a new record for the U.S. On the other hand, I read some sharp people downplaying a big shift to soybean acres in the I-states. I expect a surprise on Monday and a sharp market reaction. The market will go up or down.

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