Karen Braun is a Reuters market analyst. Views expressed are her own.
CHICAGO, Aug 17 (Reuters) – Last Friday, the agriculture market was hit with the news that big yields will make the world’s largest corn crop significantly larger in 2016.
In its much-anticipated August report, U.S. Department of Agriculture’s statistics agency placed domestic corn yield at 175.1 bushels per acre. This easily tops both what the market was expecting (170.6 bushels per acre) and 2014’s record (171 bushels per acre).
Such a high U.S. corn yield has raised eyebrows among market participants. Many analysts and traders doubt that this record yield will be realized at the end of harvest despite USDA’s forecast.
Although USDA has forecast the highest-ever corn yield in the United States this year, it is not actually expecting a record-performing crop.
When evaluating yield over the past 25 growing seasons on a level playing field, USDA’s forecast would render the 2016 corn crop the sixth-best of all time with yields about 4 percent above the trend. It would rank fractionally behind 2014 and well behind the bin-busting crops of 1992, 1994, and 2004 (http://reut.rs/2bviJiu).
Trend yield, or the average yield that be expected in any given year under normal circumstances, has risen significantly over the years thanks to better management by growers and improved seed genetics, among other reasons. While U.S. corn farmers of 20 years ago would have expected to yield about 126 bushels per acre, they can now average closer to 170 bushels per acre under similar conditions.
Viewed in this light, the large number for this year’s yield seems more reasonable. This is especially true when breaking out the state-level forecasts.
Even so, a 175.1 bushel-per-acre corn crop will require cooperation from all states, which has been a bit tough in recent years. And above all, a well-behaved weather forecast is perhaps the most vital ingredient of all.
STATE BY STATE
The forecast of 175.1 bushels per acre has many analysts drawing comparisons to 2014 and 2015, the largest and second-largest yielding years, which resulted in yields of 171 and 168.4 bushels per acre, respectively.
Doubts have swirled in agricultural circles over whether national corn yield can actually top the previous two seasons, both of which featured cooler, more favorable temperatures for corn yield in the core Midwestern states.
But what some may not realize about 2014 and 2015 is that national yield was actually held back by missed performances in some key states.
In 2014, corn yield outperformed expectations in most states based on stellar weather. But the country’s top producer, Iowa, fell short along with its northern neighbor, Minnesota. On average, they combine for nearly 28 percent of national corn production.
Minnesota yield fell 10 percent below trend in 2014 and Iowa yield dropped 4 percent below trend. If just these two yields were replaced with trend expectations for that year, national yield would have reached 174.2 bushels per acre in 2014.
2015 was a bit more challenging, especially in the Eastern belt. Some of the most notable losses occurred from Missouri to Ohio, including No. 2 producer Illinois along with Indiana. All four of these states account for about 30 percent of national production.
Last year, Illinois corn yield fell below trend by 5 percent, Indiana by 17 percent, Ohio by 13 percent and Missouri by 6 percent. Replacing final yields in those four states alone with a trend yield would have resulted in a 173 bushel-per-acre national average.
These two examples of the previous seasons are useful in demonstrating how big an impact can result when even one or two major states come up short. And this is what 2016 has going for it at the moment.
USDA’s current corn yield forecast does not suggest any serious issues in the major states, with the key word being “current” because corn still has a ways to go and the forecast is subject to change.
The Eastern belt is one of those highly questionable areas. Although USDA is calling for Ohio corn yield to fall roughly 8 percent from trend, many question if even this is too optimistic given how dry and warm it has been for much of the summer.
This logic also extends to Ohio’s neighbors which have also experienced some challenging weather in 2016. This includes Indiana, and although conditions should be considerably better than Ohio, USDA expects Indiana corn yield to come within 1 bushel from record.
Currently, USDA is expecting that 10 states will achieve record corn yields this year. This includes top three producers Iowa, Illinois and Nebraska (http://reut.rs/2bvBlPm).
If this forecast either pans out or comes extremely close to the mark, a national yield near 175 bushels per acre will not only be believable but tough to argue.
NOT OVER TILL IT’S OVER
One of the key factors that could give the bulls an argument is the weather. While there have not been any widespread, serious weather concerns this season, conditions may not have been as favorable as it might seem.
Temperatures are crucial in July and August when corn moves from pollination through ear formation to kernel filling, and generally the cooler conditions produce better yields. Although 2016 has not been extremely hot, the previous two years were notably cooler across the Midwest, particularly 2014 (http://tmsnrt.rs/2aSmS2P).
Minimum temperatures become of utmost importance during grain fill, which takes place primarily in later July and August. When temperatures are warmer overnight, this does not allow the corn plant to undergo respiration most efficiently, and this often ends up lowering the grain density and ultimately, the ear weight.
Over the past month, minimum temperatures in the Midwest have been decisively warmer than the previous two years at about 2 degrees to 4 degrees F above average (http://tmsnrt.rs/2aSy67y).
In Friday’s report, USDA forecasted record implied ear weights for 2016, edging out 2004’s record. The calculation takes into account the published yield forecast so implied weights are subject to change, though based on the recent temperature trend it would seem awfully hard to pull off record ear weights this year (http://reut.rs/2aSAQSm).
And corn ears may already be facing a bit of a challenge. Anecdotal reports from those who have been out in the fields note that tip back is present in some fields in major production states.
Tip back, which refers to corn kernels failing to fill out the full length of the ear, can occur for a variety of reasons, but hot and dry weather is the main cause. Tip back is irreversible, meaning there may already be some yield potential permanently lost (http://tmsnrt.rs/2aSo0DG).
But to further complicate the picture, perfect grain-filling weather will replace the slightly-too-warm conditions over the next couple days that will last at least through the end of the month. This cooler pattern comes at an excellent time for the core Midwestern corn states and could certainly help prop up ear weights (http://reut.rs/2aSCm75).
Above all, we must remember that USDA physically looked at much more of the corn for this forecast than anyone, so there is a chance it saw something in this year’s crop that the rest of us missed.
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Graphic- U.S. corn yield deviation from trend, 1991-2016
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Graphic- U.S. record corn yield by state and year
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Graphic- U.S. Midwest average temperature departure from mean, 2014-2016
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Graphic- U.S. Midwest minimum temperature departure from mean, 2014-2016
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Graphic- U.S. Corn: USDA implied ear weights, August 2016
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Graphic- Corn tip back in Indiana, August 2, 2016
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Graphic- U.S. Midwest temperature forecast through 31-Aug
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