Corn: Drought quashes hope for a record crop

Focus on Futures - Corn

The corn market is not following the script. New-crop prices have rallied more than $1 per bushel in just over one week (Chart 1). The annual weather scare is in full force, although the timing is a bit off. The US crop was planted much earlier than typical, which was expected to shield the crop from any early-autumn frost. What farmers did not anticipate was an early heat wave.

Normally the key pollination window comes in mid-July. Since the crop was planted so early, pollination will take place about two weeks earlier, which makes the weather in the last week of June and the first week of July critical.

Temperatures in some key Midwest growing regions reached 100°F and are threatening to compromise forecasts for record bushel-per acre (bpa) yields. To get an idea of how this would affect the US corn harvest – and ultimately ending stocks – consider: The USDA’s June estimate was unchanged from the original May estimate, at 166 bpa. That would have been substantially higher than yields in 2011-12 and 2010-11 of 147.2 bpa and 152.8 bpa, respectively. The resulting crop would have been a record 14.790 billion bushels. The previous record was 13.092 billion bushels, grown in 2009-10.

The most recent crop progress report released on June 25 is not up to date with the effects of the weather of the past few days. But even so, the downgrade to the crop’s health was steep. The good-to-excellent portion of the crop fell to 56% from 63% the week before. Last year at this time, the good-to-excellent section was 68%. The July 2 progress report will almost certainly contain a further reduction in the estimate for the quality of the crop.

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