Fundamentally Speaking

Joel Karlin
DTN Contributing Analyst

Expectations for U.S. corn yields to attain new record highs remain on track as the latest crop conditions as of July are the best since 1999.

Interestingly, conditions for the 1999 corn crop actually deteriorated the rest of the summer, with crop ratings down 10.3% by September 1 from what had been observed in July 1 and this is the fourth largest two month slide in crop ratings since the USDA initiated this date series back in 1986.

Incorporating our usual ratings system where we weight the crop based on the percent in each category and assign that category a factor of 2 for very poor, 4 for poor, 6 for fair, 8 for good, and 10 for excellent and then sum the results, U.S. crop conditions are calculated for July 1 and September 1, extrapolating if necessary.

The percent change in crop conditions between the two dates is also recorded along with how final U.S. corn yields deviated from the 30 year trend, both plotted on the right hand axis.

The trade is well aware that high crop ratings as of July 1 is no guarantee of extraordinary yields as the crop has to go through its critical yield sensitive pollination period.

Note the correlation coefficient of the percent deviation from trend for final yields is much higher using the September 1 ratings (73.2%) vs. the July 1 ratings (82.6%).

This year's July rating of 779 is one of the highest ever exceeded only by 86 in 1986, 808 in 1987, 784 in 1994, and of course the 789 in 1999.

It is much more important to see where ratings are as of September 1.

Also crop conditions normally decline from July 1 to September 1 as the increased water needs and higher temperatures take a toll on the crop.

It is rare that corn crop ratings improve over these two months when the average is a 4.9% decline but it has happened five times since 1986 and in all five occasions, final yields have been above trend.

This was the case in 1986, 1990, 1992, 1994, 1996, and 1998.

Also it appears that if the September 1 rating is 750 or higher final yields will be at or above trend.

There has been talk that with much of the Midwest slated to receive below normal temperatures and above normal rains over the next two weeks and if this forecast verifies, 2014 could be one of those rare years where crop conditions are maintained or even improved from already lofty levels.

(KA)