US Crops Getting Better, Beans and Corn Have Significant Downside - Analyst

By Ray Grabanski is President of Progressive Ag, a marketing and risk management firm for farmers located in Fargo, ND...

Prices have stabilized at near $6 corn and $13.50 soybeans (if 20c corn and 50c soybean trading ranges are 'stable'!). Can we hold these levels? Or are we due for a sharp price decline into harvest?

Monday's crop progress numbers reinforced Pro Ag's belief that weather has been ideal to finish off the crop season, with warm/dry conditions across the soggy central Corn Belt which is lagging behind normal progress (but slowly catching up?). In some sandy or dry areas this is putting some stress on certain crops, but this late in the season this stress might push crops along in development - and thus avoiding the biggest weather concern of all - frost! So far, weather forecasts have called for warmer than normal conditions for the next two weeks, which would eliminate a great deal of frost risk at this time as it would essentially avoid any really early frost. Once we get into 'normal' frost dates, the crop will be safe from any heavy damage from frost.

Soybean crop conditions dropped only 1% from the G/E category to 61% G/E, still the highest rated crop since 2004 and higher than 2005 (the last record large yield of 43.3 bu/acre). Pro Ag yield models currently suggest a new record large soybean crop at 43.7 bu/acre, up another .45 bu/acre from last week (another huge hike in yield potential). The soybean crop just keeps getting better, so soybean prices will need to retreat further from the most recent crop improvement last week. Pro Ag suspected that the ideal weather across the country was improving the crop last week, not dropping it as so many in the market had anticipated. Crop condition reports confirmed that suspicion, as once again the yield model has another significant rise last week. Pro Ag yield models have jumped from a low of 40.9 bu/acre on June 18 to 43.7 bu/acre yesterday, a huge hike of around 3 bu/acre or the equivalent of 200+ mb hike in production. USDA carryout will need to jump significantly in future reports as will their yield projections. Soybean prices are likely to run to new lows as we move towards harvest - especially if frost comes at average or later than average dates.

Corn crop conditions dropped 3% G/E to 64%, still well ahead of last year's 59%. Pro Ag yield models, however, changed very little at 158.8 bu/acre, down only 0.9 bu/acre from last week. Overall, corn conditions remain high and more importantly, maturity of the corn crop continues to 'catch up' to normal in northern Corn Belt states as warm/dry conditions continue to push the crop along. Pro Ag doubts that late season dryness will hurt the crop much if at all. Instead, it might just mean less drying costs for corn! In weather news, forecast temps remain above normal for the Corn Belt the next two weeks, with rain finishing off from Fay in the eastern US with 85% coverage of PA, KY, TN, NC, SC, and Virginia with 0.5-1.5" locally 2-3" amounts. Also important is rain forecast in southern MN and northern WI of 60% coverage of .25-1.5" rains that should help these dry areas finish off the crop. Overall, weather remains favorable to complete our record or near record large yielding corn and soybean crops. HRS wheat harvest is speeding to completion, with record large yields reported in MN and eastern Dakotas.

Pro Ag market comments have been so different than recent media attention - especially the Pro Farmer Crop tour (what crop were they looking at?). It was almost as if while the market was going up, these guys needed to find bullish information to write so they did! That's what a professional writer does when he needs a daily column, but it is not professional market analyst work!

While many analysts see late season dryness in the US Corn Belt, Pro Ag sees soil moisture levels very high in most areas (exceptions are only MN, northern WI, TN, and KY) as we close out the 2008 season. Warm/dry weather is exactly what the majority of the corn belt needs to reach maturity of the 2008 crop, and that is exactly the weather we are getting. The warm weather across the northern half of the US is pushing crops toward maturity, helping them to continue to 'catch up' to normal progress. A long, slow developing crop typically also brings heavy test weights, something that 2008 corn and soybeans are likely to have (and as HRS wheat growers are also discovering). Warm/dry weather also allows the HRS wheat harvest to move along under ideal warm/dry conditions, with nary a harvest delay from wet weather. The one major dry area left in the US included the southeast, and tropical storm Fay is pretty much ending the low soil moisture problem in most of the southeast including GA, LA, AL, NC, SC, TN, and much of KY so far and through the end of this week. Even OH and PA will get beneficial rainfall from Fay, effectively ending late season worries about moisture deficits. Essentially, Fay is ending the last major soil moisture deficit in the US (albeit with flooding rains in FL and parts of the southeast)! And soil moisture levels to begin the 2009 crop year are becoming virtually ideal across the country (recent western HRW wheat rains were icing on the cake).

Once upside momentum is broken we could be in for another $2 break in corn (and $5 soybeans) into harvest. This is not the time to turn bullish - this is the time to make catch up sales on anything not yet sold for 2008 crops (and maybe even some 2009-11 corn).