Reuters — Corn and soybeans are harvested in the U.S. Midwest in autumn but the futures market is acting like farmers have already rolled their combines through fields and found bumper yields.
Investors who bailed from their long positions as crop expectations rose during the past month could get burned if the weather heats up during the next two months, industry sources said on Thursday.
“There is still a lot of crop season left that problems could arise to bring that yield number down,” said Ted Seifried, vice-president of brokerage Zaner Group in Chicago. “I do think the market may have gone a little bit too far to the downside for the moment.”
Corn futures have fallen 25.7 per cent to their lowest in four years since a 2014 high in May. Soybean prices have fallen 23 per cent from their year high, touching their lowest since January 2012 as crop expectations have risen following reports of record acreage and near ideal weather for growth.
Soybean and corn were planted slightly later than usual this year due to delays following a cold winter and wet spring.
Corn is just starting its pollination phase, the most critical stage of development. Corn that pollinates under stress caused by hot weather or a lack of moisture faces severe cuts to final yields.
Soybeans are even less mature than corn, with only 41 per cent blooming. The crop still needs to develop pods and fill them before farmers can start harvest.
“We have two months of very critical growth and development left,” said Joel DeJong, a field agronomist at Iowa State University. “A lot of things can happen between now and then. It is not in the bag.”
The U.S. Agriculture Department’s latest ratings for both crops are the highest in 20 years. In 1994, final soybean yields came in at 41.4 bushels per acre and corn yields were 138.6 bushels per acre, both records at the time.
But ratings, and harvest expectations, can turn quickly.
In 2003, the USDA’s good-to-excellent ratings for corn fell from 75 per cent of the crop at the start of July to 46 per cent by the end of August. Soybean ratings fell to 45 per cent good to excellent from 70 per cent, as temperatures rose and soils dried out.
The changing conditions quickly spilled over into futures. Soybean prices dropped 14.3 per cent in July 2003 before staging a 49.1 per cent rally by the time harvest was wrapping up at the end of October.
Corn followed a similar track, dropping 9.8 per cent in July 2003 before reversing and posting a 20.0 per cent gain over the next three months.
For now, investors will point to the USDA’s weekly crop conditions report as cover for pushing prices lower.
“Crop ratings are by no means the be-all, end-all for final yields, but steady or better conditions during an often-stressful stretch will only add to the trade’s optimism regarding record yields at worst, absurd yields at best,” said Matt Zeller, director of market information at INTL FCStone.