Still Early to Adjust U.S. Corn Yield, but Trend۪ Not Same to All

Fears of corn planting delays in the United States amid ominous weather forecasts have been in play all spring, making analysts and traders consider that the world’s No. 1 corn crop could fall behind schedule and that yields could falter as a result later this summer.

However, plantings have been hitting expectations, so that story is less prevalent and national yield outlooks likely remain near average levels. But "normal" corn yields may mean different things to different people.

U.S. farmers had planted 71 percent of the corn crop through May 14, according to data from the U.S. Department of Agriculture on Monday. This beat the trade guess of 68 percent and stood 1 point ahead of the five-year average, and was a significant gain on the previous week’s 47 percent.

The weekly numbers were particularly encouraging given that Western Belt states that had been well behind pace all spring due to wet and cold weather made the most progress. Minnesota and South Dakota – together accounting for 16 percent of the country’s corn – planted 49 and 45 percent of their crops, respectively, within the week.

Despite the concerns with wet and cold weather this spring, U.S. corn plantings as a whole have stuck very close to average levels, though they lag the previous two years. In 2015, farmers had planted 81 percent of the corn by May 14 and the same figure was 73 percent in 2016, though the disparity with 2017 had been larger in previous weeks.

Regional concerns still exist over cooler weather and excessive moisture, the latter of which has already spurred talk of replanting. When crop development is delayed – especially by a replant – pollination often occurs under warmer, less favorable conditions, which usually lowers yield potential.

Still, the corn market is not behaving as if it expects 2017 U.S. corn yield to deviate too far from the long-term trend, which is the starting point of the yield conversation each year.

What is Normal?

Nothing thus far seems to suggest strongly that U.S. corn yields will be anything other than trend this year. But analysts do not always agree on what fairly represents trend yield because key variables – such as seed technology, field management and farmers' economic decisions, and weather – change over the years.

USDA is transparent about its long-term trend yield calculation, which for 2017 is 170.7 bushels per acre. Some industry analysts believe the true trend is closer to 167 or 168 bpa while others could justify using 172 bpa.

Given USDA's harvested area target of 82.4 million acres, the production difference between corn yields of 167 and 172 bpa is 13.761 billion bushels versus 14.173 billion.

One obvious reason to be cautious in pushing trend corn yield over the 170 mark is that the United States has achieved that feat only twice - in 2014 and 2016 - and only one other year, 2015, came very close.

The fact that these three years are at the end of the dataset makes it hard to identify just how "normal" or anomalous they were. But in looking at what transpired in those years, the argument for the 2017 trend to exceed 170 bpa seems pretty solid.

National corn yield hit a then-record 171 bpa in 2014, but full potential was probably not reached. Slow planting and emergence all spring held the plants back from development, especially in Iowa and Minnesota, where spring and early summer rains were excessive. Yield in 2014 fell notably below trend in those two states, which together account for 27 percent of national production.

The idea that yield potential was not maximized might have also applied to last year’s all-time high 174.6 bpa yield. Warmer-than-normal nighttime temperatures have historically penalized corn yields by a few bushels per acre, and 2016’s overnight lows were consistently among the highest in several years during the key summer months.

However, rainfall was abundant across the Corn Belt last summer and likely offset some of the possible warm-weather yield losses. But had temperatures been closer to "ideal," would yield have pushed even higher last year, and how high? This is an important thought to keep in mind because with a 174.6 bpa endpoint, it is not entirely clear where we go from here.

Although the story linking 2017 planting progress to possible yield losses is near or past its expiry with corn traders, the yield debate will still press on through the summer with other factors in focus and the disparity in baseline yield might be central to that discussion.

Problem Area

National corn planting pace may be on schedule, but that does not mean things are rosy everywhere.

Rounds of heavy rainfall battered No. 2 producer Illinois, Missouri, and Indiana a couple of weeks ago. Replanting is now probable in many affected areas, and this will shift corn’s schedule back a few weeks, increasing yield sensitivity.

Corn in Illinois, which grows 15 percent of the country’s crop, is in the worst initial condition in more than a decade with just 42 percent rated good or excellent. Ratings are highly subject to change early on as only 47 percent of the state’s crop had emerged as of May 14, but they certainly heighten yield risk for now.

Corn ratings in No. 10 Missouri are 49 percent good-to-excellent against 74 percent one year ago. None of the other major corn states are reporting conditions yet, and national-level ratings will likely be available in USDA’s May 30 crop progress report.

The Western Belt states ended April notably behind average planting pace while the Eastern Belt had jumped ahead. Now it seems as if they have swapped places, as corn planting in No. 5 Indiana and No. 8 Ohio has practically stalled out since then over cold and wet weather.

The forecast through the end of May calls for mostly cooler-than-average temperatures to dominate the Midwest, as daily averages will frequently approach 15 degrees Fahrenheit below normal. Overall rainfall totals may moderately exceed average levels across the Corn Belt in the next two weeks, though heavier totals up to 4 inches (102 mm) are expected through this weekend in parts of northwest Missouri and eastern Kansas.

The cooler weather will certainly slow corn emergence and development, especially in areas already wet or expected to become wet in the coming weeks. But the forecast is not necessarily detrimental to yields just yet as cooler weather is not uncommon in May and there will still be time for the crop to play catch-up pending June weather.

This is where market participants cannot ignore the emergence progress, which often gets placed on the back burner in favor of plantings. National emergence stood at 31 percent as of May 14, behind both the five-year average of 36 percent and last year’s 41 percent.

This means the 2017 corn crop will likely be pollinating and filling grain at a different point in the season than in 2016, and this is a key consideration when evaluating possible yield outcomes.