Saturday, October 04, 2014

A Yellow Swan, maybe?...

Could the remarkable yields from much of the southern and eastern Corn Belt be classified as a Black Swan event? I don't think anyone came close to predicting it until late in the summer, and I don't think any crop observer would have given even 1% odds of a national yield over 175.

For example, this is Darrel Good as late as August:

Our analysis of USDA yield forecasts for corn over 1990-2013 did not reveal any evidence of bias in August, September, October, or November.   There is compelling evidence that the accuracy of USDA corn yield forecasts has improved over time, particularly since 2011.  It is especially interesting to note that USDA corn yield forecast errors in 2012 were extremely small, with the August forecast exactly equal to the final estimate.  This performance was exceptional given the severe drought that occurred in the summer of 2012. What, if anything, do these results imply about the ongoing debate about the direction of USDA corn yield forecasts in remaining Crop Production reports during 2014?  While it is, of course, true that longer-term trends in accuracy will not necessarily dominate in any particular year, an unusually large August forecast error this year (5 percent or more) would definitely be counter to the trend towards increasingly accurate USDA corn forecasts over time. (More)

USDA August = 167.4, so 5% error = 8.4.
Anything over 175.8 would be a greater than 5% error.

I'd say the unpredictable part is confirmed.

The second characteristic - disproportionate consequences, suddenly looks more likely as well. We don't know when the freefall will end or how we will use up this ~15B bu. of corn. Business plans and retirement calculations for producers are in shreds. Fertilizer applications have stopped. Seed dealers are not popular.

The third characteristic - it seems obvious looking back - is already occurring.

And we can't stop talking about cash rents.

Oddly enough, on that note there could be a double whammy here. As high payers are trying negotiate lower, more word about what the going rate actually was is filtering out, I think. People who have been getting the same $180 while the next door field was paying $350 are finding out and are not amused. Again, unforeseen and disproportionate consequences.

How resilient each operation is depends on a variety of factors, but regardless nobody is going to be hauling much margin out of the field with the prices where we are now, let alone where they could go. What happens next spring if we are looking at corn in the $2.75 or lower range and beans around $8?

  • Will banks lend for a deeply red ink budget?
  • Will there be a rush to the exit from Boomers?
  • Will seed and fertilizer retailers blink?
  • We we surprise the market again with Black Swan acres?
  • Will Washington step in?
  • [Fill in your speculation here]
 I don't think we can rule out wild reactions if this isn't a spike down but a splat. Frankly, I'm not sure what our plan will be.


Chuck said...

Welp, we're still sitting here in NE Indiana. Corn is over 30% and it rains every day or two, so soybeans are out of the question too.

And if the rain doesn't stop pretty quick we're looking at no wheat for 2015.

Hard to get overwhelmed by all the good news as I'm looking out my back door.

John Phipps said...


Nothing worse than being the guys not invited to the party. I noticed my anxiety and anger built as the incredible yields from MO came in a few weeks ago, and there is reason to believe we have reached peak hype on the eventual yield. Still more observers are closing in on 180.

Also I would not after I shot my commentary about yields on USFR this weekend, our later beans and corn have dropped to great, from spectacular.

We're rained out as well, but finished beans. I beginning to be convinced on the strategy of planting beans as early as corn and dare the frost to show up. We run two planters and planting date a seemed to be the the strongest correlation.

Actually I did it this year because I anticipated and early harvest premium. And for two days it was great, but allowed me to get rid of unpriced bushels.

Of course, we can kiss that idea goodbye for a few years.

Hope the weather gets better in your part of the world - and you get some happy surprises.

Anonymous said...

I have been waiting for years for "blood in the streets" opportunities to get back into agriculture.

I'm not yet sure if this is it. If lots and lots of debt were thrown into the mix, then I would be a bit more optimistic about bargain hunting.

John Phipps said...


I have some theories on that scenario I will lay out presently. If you like, e-mail and we can discuss.

Anonymous said...

John on your comment about taking a frost risk on early soybeans some of the guys on the grain corn fringe area say soys take frost better than corn. Corn will survive because of growing point is still underground but it will take pretty cool temperatures to do soys in. We don't worry about frost as by the time we can plant in the rain belt frost is long gone.As far as waiting to get in to production Ag with lower prices it will be a few years away as everyone I know still is in a buying mood if prices would retreat some. The guys that will feel the pain the earliest will be the machinery dealers. regards-kevin

Bob said...

We no-tilled beans about 20 years ago in early May (N IL). About 2 weeks later, they were all killed by frost. Neighbor's beans planted in tilled fields survived. We surmised that the cornstalks in our fields reflected the morning sunlight, while the black fields on the other side of fences warmed up and saved their beans. We no-tilled replant beans; yields were good. We still no-till in early May, if possible.