Crop Conditions Continue to Worsen
May have bad impact on yield and harvested acreage
- The USDA released its weekly Crop Progress report last week and crop conditions for both corn and soybeans continue to worsen. Crop conditions for both products are well below both year-ago and week-ago levels. The crop deterioration may impact both yield and harvested acreage negatively and further reduce the overall size of both the corn and soybean crop to levels below those forecasted by the August WASDE report. Recent independent field analyses of the corn crop suggest a yield of about 147 to 149 bu/acre vs. the most recent WASDE level of 153 bu/acre. We are further suggesting that a decline in harvested acres from the WASDE level of 84.3 million acres for corn seems quite plausible, with a final harvest of only 83.0 to 83.5 million acres, since poor crop condition may lead to a decision not to harvest some of the crop.
- Corn quality in the two highest condition grades fell from 54% last week to 52% this week. Six weeks ago the Good and Excellent condition grade stood at 62%. Last year 69% of the crop was in Good or Excellent condition. The Poor and Very Poor grade levels increased by 200 basis points to 21% compared to 19% last week and just 11% last year. The combination of deteriorating yield and condition, combined with lower harvested acres may lead to even higher corn prices and lower corn carryovers (inventory). This situation remains supportive of our recent upgrade of the space and CF Industries (CF, Buy, $180 PT) in particular. We continue to expect a strong market response from farmers next Spring with a 93 to 95 million acre corn crop being planted. That number may go even higher if deterioration persists.
- Soybean conditions also deteriorated this past week with the Good and Excellent grade levels declining to 56% this week from 57% last week and 64% last year. The relative performance of the soybean crop vs. corn means that the economic incentive to plant corn over soybeans or any other crop is high. Poor and Very Poor conditions increased to 16% vs. last week's 15% and last year's 12%.
