Fundamentally Speaking

Despite the deterioration in the health of the nation's 2017 row crops as evidenced by the continuation of lower USDA crop ratings, market action remains decidedly negative.

Such is the case for soybeans despite the USDA reporting that only 57% of the nation's crop was either in good or excellent condition, a much larger than expected 4% drop from the prior week.

The lack of a positive response to this news is a shot across the bow for the bulls as the managed funds are long all markets in a dramatic reversal from what was seen as recently as two weeks ago when they were short by large margins.

The point is that any bullish news will not provide much upward impetus as funds are already long while bearish inputs may cause sizable fund liquidation accentuating any downside move.

The bearish news for soybeans is near-term weather forecasts that are calling for copious amounts of rain to fall across some of the driest areas in the Corn Belt including Nebraska, Iowa and Missouri, which will be particularly beneficial for soybeans.

Another negative consideration is that in years past when national soybean conditions were very similar to those prevailing right now or even slightly worse, final yields managed to be more than respectable.

This graphic shows the percent of the U.S. soybean crop rated as either good or excellent and a version of our usual ratings system (where we weight the crop based on the percent in each category and assign that category a factor of 0.2 for very poor, 0.4 for poor, 0.6 for fair, 0.8 for good, and 1.0 for excellent and then sum the results).

The results are for week 29 which is usually the third week of July going from 1986 to 2017.

This data is plotted vs. the percent that the U.S. final soybean yield deviated from the 30-year trend. The week 29 data for 2017 has the 57% in the good or excellent categories and a crop rating of 69.8.

Other than the severe drought year of 2012 these are the lowest crop ratings since 2006 at 54% good or excellent and a crop rating of 69.2.

In fact, the prior year 2005 had very similar ratings of 54% good or excellent and a crop rating of 69.0. Interestingly the 2005 final soybean yield was 4.5% above trend and the 2006 yield 2.6% above trend. We also see that in 1996, the week 29 crop rating was 69.4 with 53% in the good or excellent condition yet final yields that year were 2.2% above trend.

Thus in addition to the soybean market plagued by excessive fund length and a wet near-term forecast, past data suggests even with current crop ratings well below those seen in recent seasons very respectable final yields can still be seen, especially of August weather is favorable.

(KA)

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