Grain values surged this week as hot and dry conditions continue to plague the Corn Belt. New crop corn values that seemed quite improbable just a week ago, now have producers largely stuck in a state of indecision.
Producers are caught between the desire to hedge their corn crop at values which are now $2.00 above levels for which most analysts predicted that they would have to settle and attempting to calculate their actual hedge position based on previous sales and lower yield ideas. December corn rallied over $1.00 higher than last Friday's close this week while closing over $.80 higher for the week.
Crop conditions plummeted this week as widespread dry conditions combined with excessive summer heat have made the reality of projected trendline yields seem like a distant fantasy. As expected, lower yield estimates are beginning to inundate the marketplace. One news service released an average estimate of several analysts today that pegged the corn yield at 157 bu./acre.
My guess is that many of the analysts included in that survey have not updated their models recently. One private analyst released a corn yield estimate of just less than 155 bu./acre, which seems closer in line with where the market is currently trading.
In actuality, given the rally to corn values this week, I suspect that the market is factoring in a national average corn yield estimate near 152 bu./acre. One of lowest estimates that I have seen recently comes from a private weather service and has pegged corn yield near 144-147 bushels per acre. This would be below last year’s final yield.
If the weather does not improve over the next 2 weeks, a national yield below 150 may likely become a reality.
The corn market has done a good job of smartly increasing the price of corn based on the damage to the crop that has occurred. In order for the market to exceed its contact highs of $6.73 1/2 and trade toward $7.00, the current weather pattern would have to persist for another two weeks. There are signs of improved chances of rain as we move into the second week of July. This will be watched closely next week for signs of a long overdue pattern change for the drought stricken Midwest.