Fundamentally Speaking
Joel Karlin DTN Contributing Analyst

Monday 08/25/14

Change in Soybean Crop Conditions vs. Yield Revisions

Since the USDA August crop estimates, new crop soybean futures have eroded roughly by 30 cents based on improving weather and ideas that subsequent USDA crop production reports will show even a higher 2014 soybean yield.

We have recently seen a number of articles asking whether the market adage "big crops get bigger and small crops get smaller" is really true.

That is subject to debate especially for soybeans as August and even September weather can make a big difference for final yields as demonstrated last year.

This piece shows a scatterplot of the August 1 to October 1 percent change in crop conditions, extrapolated if necessary using 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.

These values are plotted going across on the x-axis. Values for the percent change in the USDA soybean yield from the August to the final crop report issued in January are plotted up and down the y-axis.

The correlation between the two variables is quite high at 78% indicating there is a strong positive association between August 1 to October 1 changes in crop conditions vs. changes in the USDA soybean yield estimate from the August to the final report.

The trend-line indicates that changes in crop conditions explain over 60% of the August to final yield change variability.

Note that improvements in crop conditions from August 1 to October 1 are not that common for since 1986 when the USDA first started releasing national soybean crop ratings, only seven of the 28 years have seen improvements over the months of August and September.

In six of those seven years, yield gains were seen from the August to final crop report including some of the largest upward revisions ever with the average for those years a 6.0% increase in yields that applied to this year's August USDA estimate of 45.4 bushels per acre (bpa) would suggest a yield of 48.1 bpa.

The regression formula indicates that even should crop conditions stay steady at the 8/1/2014 reading of 760 (the fourth highest ever for that date), final yields would increase by 4.23% pushing the yield to 47.3 bpa.


Posted at 9:54AM CDT 08/25/14 by Joel Karlin
Comments (1)
Where does the sds come in to play in this market?
Posted by Michael Graves at 9:46PM CDT 08/27/14
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