Tour Reveals Risk to Soybean Crop, but Greater Potential for Soybean Oil

Key Points

• Results of the Pro Farmer Crop Tour project smaller corn and soybean crops in the U.S. as drought and the record heat index lower yields, especially in the western Midwest. 
• At this stage of the growing season, yield loss due to ongoing heat stress is a much greater risk for soybeans than for corn.
• Soybeans have a much tighter supply situation than corn due to the loss of planted acres. If hot and dry conditions in the Midwest continue and yield loss for soybeans increases, U.S. soybean supply will tighten further. This will strengthen interior cash basis and lower exports.  
• However, high temperatures late in the growing season typically raise soybean oil content relative to protein content. The upside is soybean oil prices are historically strong relative to soybean meal prices.  
• Buy basis for co-ops and processors will be higher in the 2023/24 crop year for soybeans, but processor margins are expected to remain strong.  

Pro Farmer Crop Tour

The annual Pro Farmer Crop Tour concluded August 24 amid smothering heat and drought in the western Midwest, and the data collected suggests smaller harvests for both corn and soybean crops in the U.S. this year. Pro Farmer Newsletter estimates the national average corn yield at 172.0 bu./acre, compared to USDA’s modeled number of 175.1, and a national average soybean yield of 49.7 bu./acre, versus USDA’s estimate of 50.9 bu./acre. The yield for most states surveyed on the tour improved over last year’s poor performance. Crop scouts, though, observed both crops struggling in triple-digit heat during the tour. 

The states included in Pro Farmer’s survey – Illinois, Iowa, Indiana, Minnesota, Nebraska, Ohio, and South Dakota – account for roughly 70% of the U.S. corn crop and 60% of the soybean crop. The tour provides insight into how USDA may adjust yield in its September Crop Production Report, which will be based on objective yield surveys. Crop yields in previous USDA reports were model-based.

Corn versus soybean outlook

Scouts on the Pro Farmer tour found sporadic and highly variable yields for both corn and soybeans, especially across the western Corn Belt. Early heat and drought stress in June accelerated maturation for both crops. While rains in July brought relief to much of the Midwest crop, the return of record heat and dry conditions in August have negatively impacted crop development. 

With the majority of the soybean crop still in the critical stage of setting pods (which determines yield), a continuation of heat and dry conditions for the remainder of the growing season will have more impact on soybeans than corn. Yield potential for corn has largely been determined. More than half of the corn crop is now denting, according to USDA, which means the risk to yield from prolonged heat and drought is more limited. Crop scouts, though, saw a high level of sagging ears, which could mean more tip-back, or kernels being aborted. The result may be smaller kernels, which would lower test weights. 

Corn, though, benefits from expanded acreage this year, up 6.2% YoY, which allows more cushion to any further reduction to crop yields. The situation for soybeans isn’t as forgiving. USDA estimates soybean planted acreage fell 4.6% YoY this spring to the lowest level since 2020, making the soybean balance sheet more sensitive to yield loss.  

Outlook for soybean merchandisers and processors

The soybean crop is still in the critical pod-setting phase that depends on moisture in August to maximize yield potential. Thus, persistent dry conditions are raising concerns on supply availability at a time when the U.S. soybean balance sheet is already the tightest in three years. According to USDA, 38% of the U.S. soybean production area is within an area experiencing drought as of August 22 compared to 20% last year. 

Crop scouts on the tour observed soybean pods being aborted in the triple-digit heat. Although pod counts were higher in many states versus last year and the 3-year average, more pods will likely be aborted if hot and dry conditions continue. Additionally, scouts widely noted sudden death syndrome and white mold.

If hot and dry conditions in the Midwest continue and yield loss for soybeans increases, U.S. soybean supply will tighten further, resulting in stronger interior cash basis and a higher buy basis for co-ops, merchandisers and processors.  

However, high temperatures late in the growing season are also associated with a higher soybean oil content, according to the United States Soybean Quality Annual Report.  Coincidentally, soybean oil prices are historically strong relative to soybean meal prices. The soybean oil versus soybean meal price ratio, currently at 3.0 on a pound-for-pound basis, continues to trade above historical averages, driven by the expansion in demand for renewable diesel. Although hot temperatures during the growing season tend to reduce soybean protein levels and lower soybean meal values, the combination of higher oil extraction and higher soybean oil prices will be benefit processor margins.