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Friday, February 03, 2012

Will The 2012 Corn Yield Be Above Or Below The Trend Line?



 

What will the national average corn yield be this year?  No, that’s not a fair question.  But what might be an easier question to answer is will the national average yield be above or below the trend line, which falls about 160 bushels per acre for 2012?  And that question is significant because the last two years of corn yields have been under the trend line.  Will it be that way again, or will it be above?

A lot of emphasis is put on the trend line, and it is only an average of yields over time.  High yields get higher and low yields get higher also, consequently the trend line slopes upward and has risen from about 60 bushels per acre in 1960 to 160 bushels per acre in 2012.  There is a fancy formula for the trend line, but don’t lose any sleep over understanding what it means.  But the interesting issue is whether the 2012 corn yield will recover from two years of substandard performance and bend the average back up.  If not, the trend will not climb quite as fast, if that is important to you.

University of Illinois ag economists Darrel Good and Scott Irwin analyzed the ups and downs of corn yields and contend that the rate of climb in the trend line has not really increased in recent years, although the period of 2003 to 2009 recorded yields above the trend line.  But they say several of those in the middle of that period may be below the trend, if the trend line had bent upward at a greater increase.

Interestingly, the last 50 years has seen 60% of the yields above the trend line and 40% of them below the line.  However, the above average yields were not as high above the trend line compared to how low the below average yields fell below the line.  Consequently, fewer yields, such as 1983, 1988, and 1993 weighed down the average to a substantial degree.  When yields are above the trend line the average is 5.6 bushel above, but when they are under the trend line the average is 8.6 bushels below.  And the reason for that is weather, say Good and Irwin.  When the weather is bad, it is really bad, but when it is good, it is good, but not that good.

The question on your mind and the minds of traders, merchandisers, cowboys, ethanol refiners and billions of other end users around the world is whether the 2012 crop will bounce back after two years of sub-par performance.  The economists looked at the number of times above trend line yields followed each other, the number of times below trend line yields followed each other, and how often they reversed themselves from year to year.  On the below trend line yields, there was one period of four years, but on the above trend line runs, there were periods of four, five, and seven years.

Looking at the chance for a three-peat for a below trend line yield this year, Good and Irwin say there are three other periods of two year runs below the average.  Two of those were followed by a third year below the trend line before a fourth year spiked above it.  But the third case began a four year run of below average corn yields.

Summary:
The national average corn yield this year is anyone’s guess, along with whether the yield will be above or below the trend line.  Good yields are more frequent than poor yields, but when yields are poor they are more significant than the good yields.  Frequently, yields in successive years will stay either above or below the trend line, with a slight tendency toward annual reversals.

Posted by Stu Ellis on 02/03 at 12:01 AM | Permalink

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