AUGUST CROP REPORT
NOT VERY RELIABLE
Prepared by
Richard A. Brock & Associates, Inc.
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Tuesday morning USDA will release its August production estimates for all major crops. There is little question that prices will gyrate wildly up to the release of this report, but the history of August Crop reports indicates that you may not want to rely heavily on this report or on the immediate price reaction as an indication of where the market will be at the end of the season, Since the Fourth of July, market price reactions have been a strong indicator that this is a true weather market and because of the lack of price direction, no one has a confident handle yet as to what final yields are going to be. This report will in all likelihood only add concision to an already highly emotionalized market.
Big Swings In Corn
The table is very revealing. For corn production estimates based upon the August crop, consider the following:
1. In the last seventeen years, the August crop estimate has underestimated the final crop by 5% or more six times. In 1981 the final crop was 5% higher than the August estimate; in 1985 it was 7.4% higher; in 1988 it was 10.1%; 1992 it was 8.2%; in 1994 it was 9.6% and in 1996 the final crop 6.9% larger than the August estimate.
2. The final crop has deteriorated by 5% or more from the August estimate only three times. In 1983 the drop was enormous as the final crop was nearly 21% smaller than the August estimate. In 1993 the final crop was nearly 15% smaller and in 1995 9.2% smaller.
3. In 1989, 1990 and 1991 the accuracy of the August Crop report was consistently high. In fact, it lulled many forecasters into a mode of complacency assuming that the trend would continue. What has happened since then is anything but consistency, other than the fact that the years have alternated from up to down. For example, in 1992 the yields were much better than expected in August, while in 1993 yields dropped sharply. In 1994 yields were back up, in 1995 they were down and 1996 they were back up. If history is to repeat itself, the 1997 corn crop will be much lower that what the August estimate tells us on Tuesday morning!
* Brock 1997 Yield Estimate = 135.0
Soybeans Are A Different Story
Farm boy instincts would tell you that the final soybean yield should vary a lot more from the August 1 estimate than corn due to stage of maturity in soybeans versus corn as of August 1. History tells quite a different story, however. More specifically, consider:
1. Since 1980, the final soybean yield has dropped 5% or more from the August 1 only two times! In 1983 the final yield was off by nearly 12% and in 1984 by 8.6%.
2. The final yield has increased 5% or more six times since 1980 with the largest increase occurring in 1994 when the final yield jumped by 10.3% from the August estimate. The other years of increase were 1985, 1988, 1990, 1991 and 1992.
3. The variances in soybean yields have been much less from the August report than what has occurred in corn. In fact, the variance has been less than 5% more than 50% of the time.
The Bottom Line: After reviewing Tuesday morning's estimates, history would indicate that you should plan on the final soybean production number being near the August estimate or possibly even higher for soybeans. On the other hand, if history of the last six years repeats itself, the August corn estimate is going to be on the high side and yields will drop from here on out.
Putting It All Together
Speaking in generalities, this is not likely to be a good year for yields in the southern half of Illinois, parts of Indiana and several areas throughout Missouri. On the other hand, many of those yield losses are being offset by records in Kansas, Nebraska and Iowa. Southern Minnesota and southern Wisconsin are also experiencing one of the best production years in history.
Irrelevant of the August report, weather scares and price swings will continue to be dramatic through mid- September. As of now, the trend in both corn and soybeans remains sideways. This is not a good decision making time. Past advice has everyone at 30% forward contracted in the cash market and hedgers have put a considerable amount of money in the bank on hedges for corn, soybeans and wheat. This is a good time to make small decisions–not big ones.
August 8, 1997 Richard A. Brock & Associates, Inc.
2050 W. Good Hope Road, Milwaukee, Wisconsin
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