What could turn corn prices?

World Agricultural Supply and Demand Estimates released last week were bearish for crops, and I noted: “Changing the forecast means changing the supply and demand fundamentals…”

That, of course, begs the question: What could turn the numbers around?

Any forecast has lots of moving parts, so here’s a look at the factors affecting corn and soybeans that could catapult prices higher. The key word is “could” – not “should” or “will.” In other words, it might happen, but don’t bet the farm on it. Simply put, supplies could get smaller, demand could get stronger, or a combination of the two could happen. But how likely is either?

Trouble is spelled s-u-p-p-l-y

The first big  trouble for prices from the August WASDE came on the supply side of the ledger. USDA forecast:

• Record corn crops. 188.8 bushels per acre yields and a 16.7-billion-bushel crop.
• Record soybean yield. 53.6 bushels per acre. Production of 4.3 billion bushels, while not a record because USDA dropped planted acreage, would be large nonetheless.

These August benchmarks almost certainly will change before the last kernels are used. For starters, take a look USDA’s track record, which the agency conveniently provides.

Yield averages don’t tell the full story

Since 1965 August corn yields averaged less than two-thirds of a bushel per acre difference from the agency’s final estimates. Of course, annual deviations were much larger. August counts were as much as 18.8 bpa too big and 11.4 bpa too small.

Outliers are worth noting on a couple of fronts.

• The “too big” number is more than three standard deviations from average. For non-math majors, this puts the probability of exceeding this at less than 1%.
• “Too small” isn’t quite as much of an outlier but still has a probability around only 5%.

Not surprisingly, the extreme yield variations tend to come in unusual years.

• The “too big” year — by 18.8 bpa — was 1983, which included the infamous “PIK” program drought summer.
• Extreme yield deviations on the “too small side” include the 1993 flood year, which was second at 15.3 bpa. Other years with double-digit differences came in 1995 (extreme heat supposedly caused Iowa cows to explode), 2010 (high nighttime temperatures), and 2020 (lost to the pandemic).

Overall, the odds of higher or lower corn yields from August resemble a reasonably normal presidential election: 53.3% for too high and 46.7 % too low, with the average of these deviations around 5%.

Soybean results were perhaps even tighter. August yields were too big 51.7% of the years, too small 46.7%, with the 1989 August yield the same as the final. Years with big differences tended to be years with drought, like 2012 and 2003, or those when growing conditions turned unexpectedly favorable, like 2005.

2025 weather favors high yields

Weather conditions so far during this growing season favor good, perhaps great yields, at least for corn. Adapting a model developed by USDA suggests average corn yields of 191 bpa or more are possible.

Temperatures during July were warmer than normal in all key Midwest states, averaging 1.75 degrees or 2.2% above normal. But rainfall was abundant too in all these states — 1.365 inches or nearly 35% on average. Lack of warning signals from traditional measures of stress also supports ideas that corn production will be quite good.

Jury out on soybean yields

August temp and precipitation are limiting factors for soybeans in this weather model. Based on preliminary results for the first half of the month and forecasts for the rest, this method puts average nationwide soybean yields at 53.4 bpa, very close to USDA’s August estimate. Perhaps that’s not too surprising because my estimate includes weather forecasts as well as observations to date, while USDA’s monthly predictions factor in only “normal” weather for now.

Time is running out for weather bulls, who likely will soon begin touting forecasts for early freeze threats — a sure sign they’re beginning to grasp at straws.

Production is the biggest, but not the only chunk of total supply. Imports are normally minor, except when smaller crops require augmentation. Supplies left over from previous years are a larger factor, but add only around 7% to the total, becoming an issue only when the screws really tighten.

This means any smoking gun for a surprise likely must come from exports and domestic usage like crush, livestock feeding and ethanol production. Can demand right the teetering ship SS Grain Market?