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Thursday, August 09, 2012

Buckle Your Seat Belt:  Crop Report Day



 

This is a big morning.  The most anticipated USDA crop report of the year is the August crop report, which estimates corn and soybean yields based on several thousand field surveys a few days before and after August first. However, it will be the most anticipated August first crop report in many years, based on the dismal growing conditions this year and the unusually high demand for crops by a growing world population.  The US food machine just was unable to perform at peak capacity this year because of the drought.

 

The numbers will be released by USDA at 7:30 Central time this morning.  Keep in mind that pit trade in Chicago opens at 7:20 a.m., 10 minutes ahead of the release of the USDA report.  Expect a lot of high frequency computer-generated trading and some wild price fluctuations.  Small speculators may be shaken out quickly with losses.

The estimates are based in part on interviews with farmers, says University of Illinois marketing specialist Darrel Good,  “The Agricultural Yield Survey (AYS) queries farm operators in 32 states for corn and 29 states for soybeans asking operators to identify the number of acres to be harvested and to forecast the final average yield. The sample of operators is based on a sophisticated sample design to achieve the desired sample size and each state is expected to achieve a minimum response rate of 80 percent. In 2011, approximately 27,000 operators were surveyed for all crops for the August report. Each operator is surveyed in subsequent months to obtain new forecasts of acreage and yield. Historical relationships indicate that respondents tend to be conservative in early forecasts of final yields (underestimate yield potential), particularly in drought years. This tendency is quantified and factored into official yield forecasts.”

 

The other part of the survey is based on enumerators visiting fields and making random checks to count kernels and beans, says Good, “Based on the June acreage survey, a random sample of fields is drawn in each state and enumerators visit these fields to take measurements needed to forecast yields in pre-determined segments of the fields. In 2011 these measurements were taken in 1,920 corn fields and 1,835 soybean fields. For corn, the number of plants and number of ears per segment are counted and the size of the ears is measured. For soybeans, enumerators measure row width and count the number of plants, number of main nodes, lateral branches, dried flowers and pods, and pods with beans in each segment. The data are used to forecast grain weight (yield) per acre. Each segment is visited in September, October, and November (if not yet harvested) to take new measurements and counts to form new yield forecasts.”

 

No matter how perfect the survey procedure is, crop conditions change over time and may further deteriorate this year.   So the successive reports will be refined until the final report in January.

 

According to a survey done by Dow Jones, the commodity traders are expecting USDA to forecast a crop of 10.971 billion bushels on an average yield of 126.2 bushels per acre.

 

That would assume harvested acres at 86.9 million, down 2 million from what was projected in July. That would be about 90% of planted acreage.  In the drought years of 1988 and 1983 we harvested about 85% of planted acres. If we harvested 85% of planted acreage this year it would mean harvested acreage of 82.4 million. There will be a lot of attention paid to USDA’s expectations for abandonment and harvested acres. 

 

USDA's August 2011 corn production forecast was less than what the market expected. In the seven prior years USDA's forecasts higher than what the market expected.  Says Good, “Because yield forecasts are limited by crop maturity and are influenced by subsequent weather, the August yield forecasts tend to have the largest deviation from the final estimates released in January. For the period 1970 through 2010, the August yield forecast for corn ranged from an overestimate of 18.3 percent to an underestimate of 10.1 percent. The middle 50 percent of the forecast errors ranged from an over-estimate of 1.3 percent to an under-estimate of 5.1 percent. For soybeans, the August yield forecast ranged from an overestimate of 16.2 percent to an underestimate of 10.2 percent. The middle 50 percent of the forecast errors ranged from an over-estimate of 3.0 percent to an under-estimate of 4.5 percent.”

 

For soybeans, the average trade estimate is a crop of 2.786 billion bushels on a yield of 37.2 bushels per acre. That assumes harvested acreage of just under 75 million.  Beans are very hard to determine yield this early, and the September report will likely be more accurate, since pod weights are just not much right now. 

 

Summary:

USDA is preparing its August Crop Report, which reflects the yield in the first actual field survey of the season.  The market is expecting substantial decreases in estimates from the July crop report, both in average yield and harvested acres, for both corn and soybeans. 

 

Posted by Stu Ellis on 08/09 at 11:03 PM | Permalink

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