Canada Markets

Use of trend line analysis to forecast yields can be a dangerous game. DTN Contributing Analyst Joe Karlin laid clearly laid out the challenges for market forecasters of corn in his January 18 Fundamentally Speaking blog titled What Should 2013 Trend Yield for U.S. Corn be Estimated At?

Last spring's forecasts by the USDA for U.S. corn production based on trend-line yield projections called for a yield of 166 bushels per acre in order to calculate production. While hind-sight is 20-20, we all know that the USDA was blind-sided with the Midwest drought which reduced actual corn yield to 123.4 bu./acre, a drop of 42.6 bu./ac or approximately 26%. This was the third year that actual corn yields have fallen significantly below trend after reaching a record high of 164.7 bu./acre in 2009. The 2012 yield swing contributed to a drop in production of 4 billion bushels.

The challenge, as Karlin stated, is the choice of yield data to estimate 2013 yields. DTN Senior Analyst Darin Newsom has also stated concerns surrounding the use of trend-line yields as a means of forecasting production. One response submitted to Karlin's piece suggested the entire exercise of forecasting crop yields should be left until July when more information is available.

Just the same, I've attached the 30-year trend for spring wheat on the Prairies. The 30-year trend would indicate yield to fall just .1 bu./acre from last year's 41.2 bu./acre for average Prairie spring wheat yields, to 41.1 bu./acre.

The previous 20-year tend for the same data indicates a slight increase in 2013 yield to 41.33 bu./acre. The trend generated from the previous 10-year data would suggest a 2 bu./acre increase to 43.1 bu./acre.

Another large issue will be the seeded acreage for wheat. While I've heard numerous times that $12/bu. is the new crop price for canola that will support canola acres, Agri-Trend analyst Wayne Palmer has suggested that canola will need to double the price of wheat, in other words, climb to $17/bu or $750/mt, in order to stop the switch from canola acres to wheat. At today's $560/mt on the November canola future, we have a long way to go to reach $750/mt and this theory would suggest a significant swing to wheat production.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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