Corn futures have fallen to new contract lows under the weight of rising U.S. crop expectations, as weather has remained favorable for crop development across most of the Corn Belt, with forecasts indicating that pattern will continue into late July, when the majority of the crop will have already pollinated. With that in mind, it is time to take a look at just how high the yield potential is for this crop.
The best indicator right now of U.S. corn crop potential is USDA’s’ weekly crop ratings. Although those ratings are subjective, they have shown a reasonably strong correlation with final corn yields in the past. The ratings clearly suggest high yield potential. The overall good/excellent rating of 74% for U.S. corn conditions as of July 6 was the highest for early July in eight years, one point below the rating for the same week in 2018. What is more eye-opening is that the crop rating of 86% good/excellent in the top producing state of Iowa was the highest for early July since 1994, when that rating was an unbelievable 98%.
The good/excellent rating for U.S. corn conditions has been 74% or higher in early July only nine previous times since 1986, and as can be seen in the table at the bottom right, the final U.S. yield came in above the 20-year linear trendline yield in all nine of those years by anywhere from 1.5%-14.7%. The average increase over trend was 6.3%. An increase of 14.7%, which was recorded in the watershed crop year of 1994 does not seem to be within the realm of possibility. However, with the 20-year trendline yield this year at 182.3 bushels per acre, an increase over trend of just 1.5% would mean a U.S. yield of 185 bushels, 4 bushels above USDA’s current estimate. Using the harvested acreage forecast from the June 30 Crop Acreage report of 86.774 million, that would push the U.S. corn crop above 16 billion bushels for the first time.
Regression analysis comparing an index of July 6 U.S. crop conditions with final yields points to a potential record high final yield of 188.7 bushels this year, 7.7 bushels above USDA’s current estimate, which is based on a 30-year linear trend, and 9.4 bushels above last year. That would point to a monster crop of 16.374 billion bushels. We must note, though, that the correlation between the crop ratings index and final yields at this point is still only moderate, having an r-squared value of 0.59 on a scale of 0-1, where 0 means no correlation and 1 means 100% correlation. Also, the r-squared value does not indicate causality, other factors and measures must be considered.
Still, weather forecasts are likely the biggest “other factor” we must consider and, as stated earlier, they continue to look favorable for now. At this point, odds of the U.S. yield reaching at least 185 bushels appear significant and possibly the only thing that could derail this crop is a “flash” drought similar to what occurred in 2010, when U.S. crop conditions were rated 73% good/excellent in early July but the U.S. yield wound up 5.0% below trend.
