USDA’s weekly Crop Condition report contained little, if any, good news for grain and oilseed users as condition ratings continue to approach the all-time lows seen in 1988, the last widespread drought to high major US growing areas.

Only 34 per cent of US soybean acres were rated in Good or Excellent condition as of Sunday. That figure is 6 per cent lower than last week and a fully 30 per cent lower than one year ago. It is also 31 per cent lower than the 10-year average for week 28 which, this year, ended on 15 July. The Good-Excellent per centage is still 14 per cent higher than it was at a similar point in the 1988 growing season when hot, dry conditions pushed the Good/Excellent per centages as low as 19 per cent in mid-August and never allowed a figure over 23 per cent from 1 August onward.

The situation for corn is equally bad. Good/Excellent ratings for corn fell to 31 per cent this week, down 9 per cent rom last week’s 40 per cent. This week’s number compares to 55 per cent one year ago and a 10-year average of 63.8 per cent for this week. The Good/Excellent per centage for the week in 1988 was 18 per cent. 38 per cent of all corn acres are now rated as being in Poor or Very Poor condition. That compares to only 10 per cent last year at this time.

About the only piece of good news that we could find was for spring wheat where 65 per cent remained in Good or Excellent condition. That figure is only 1 per cent lower than last week but is 8 per cent below last year’s 73 per cent Good/Excellent ratings at this time.

Is the corn market overheated based on the most recent information? That is a bit of a trick question. If one is going only on the most recent data from USDA, we think the answer is yes. The kicker of course is that the market may not be trading the most recent information from USDA—-even just one week after it was released.

We offer the chart below as evidence that the latter is very likely the case. USDA’s estimates for production and usage last week projected that 1.183 billion bushels would remain in bins at the end of the 2012-13 crop year. That is sharply lower than the June estimate but 31 per cent larger than the current forecast for ending stocks this year. It also represents 9.3 per cent of total corn usage for ‘12-’13. That compares to only 7.2 per cent now forecast for ’11-’12 and 8.6 per cent for ‘10-’11. As can be seen in the chart, a 9.3 per cent year-end stocks-to-use ratio should, according to recent corn supply-price relationships, drive an average farm price of about $5.20/bushel, not the nearly $8 prices we are seeing now. Did corn demand grow that much? We don’t think so. What we do believe is that the market is trading a MUCH lower yield than the USDA’s prediction. In fact, it appears that the trade is now looking at a yield less than 140 bu./acre and a year-end stocks-to-use ratio of around 5 per cent — the level believed by many to be the minimum possible.