Grain Market Viewpoint

Are Soybean Yield Reductions Warranted this Early?

Soy traders don't seem worried about the record number of acres going in the ground, but seem extremely nervous about the potential yield drag that could be associated with late-planted soybeans. Personally, I believe its still too early to be counting on significant yield drags, especially with today's stronger varieties. Still, several in the trade will tell you: Soybeans planted after the end of May will actually start to experience a reduction in yield. Others believe mid-June is a more accurate yield reducing line-in-the-sand. Regardless, the bulls seem to have the trade spooked, and the current record yield estimate of 44.5 bu./acre by the USDA is now being thrown under the bus.

The trade is simply electing to believe its too late and too wet to get a record national yield out of this crop. I personally think the bulls are getting out over the tips of their ski's a bit. What some might be missing is that there is very little factual evidence to back up this major yield reduction so early. It sounds good in theory, but I just don't see conclusive evidence. Not to mention the new varieties and how they will perform in these conditions is still somewhat of an unknown. Don't get me wrong, yields will ultimately be the determining factor for price, I just think it might still be a little early to be shaving bushels.

One thing is for certain, the trade is definitely more worried and concerned about a potential yield drag than they are about additional bean acres going in the ground. The reason why is somewhat simple: Even if we add 1.8 million more soybean acres, a slight 1-bu./acre drop in overall yield will basically offset all of those gains. Therefore, on paper yield losses obviously looks very scary. 

Lets play it out a little further. The USDA is currently assuming we will harvest 76.2 million soybean acres. For argument's sake, let's say that number jumps higher by 1.5 million acres (could be conservative), giving us 77.7 million total harvested soybean acres. Let's further assume we see just a 1-bu./acre increase over last year's devastating yield of 39.6 bu. This would give us 77.7 million harvested acres at a yield of 40.6 bu., or a total production number of 3.155 billion bushels. This is still some 145 million bushels more than last years total production.

Let's also not forget about South America. Brazil looks as if they will harvest at least an additional 650 million bushels (66.5 mmt last year vs. 83.5 mmt this year). Argentina looks as if they will harvest an additional 430 million bushels (40.10 mmt last year vs. 51.0 mmt this year). Paraguay is also harvesting a record soybean crop and will have an additional 155 million bushels (4.35 mmt last year vs. 8.35 mmt this year).

Bottom line: Production setback experienced last year in South America was one of the main driving forces for higher prices. With the South American crop essentially home-free, and very little chance for any type of repeat production  problems, you have to believe the overall environment and landscape have drastically changed. Yes, the trade is currently scared in regards to U.S. yields. I can understand to some degree considering the current delays and extended rainfall in the forecast. But when you start to put all of the puzzle pieces together I see a vividly bearish longer-term soybean picture. Moral of the story, be careful being too close to the trees to ultimately see the forest. Certainly prices can push higher considering the tightness in the old crop and the upcoming roll by the funds, but in the end I have to believe traditional supply and demand wins out.

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Kevin is a leading expert in Agricultural marketing and analysis, he also produces an award-winning and world-recognized daily industry Ag wire called "The Van Trump Report." With over 20...
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