In what was once a very promising start to the 2012 US growing season, conditions have recently taken a dramatic turn for the worse for our nations corn crop.
Only 5 weeks ago 77% of the crop was rated in good or excellent condition, the second highest on record. This figure has since slipped to 63%, with further reductions expected next week. The current figure is the 2nd lowest in the past decade at this stage of the growing season.
The primary reason for the drop in crop ratings has been the lack of meaningful rainfall for much of our countries mid-section, along with hot temperatures. In Chicago there have already been 13 days with high temperatures at 90 degrees or higher.
The average for the entire calendar year is 14 days. On the map below you’ll see that much of the Midwest has received less than 50% of its normal rainfall over the past 60 days. In Indiana 85% of the top soil is rated to be short to very short on moisture. In Missouri this figure stands at 82%.
What does all this mean for our nations corn crop? It means we better get some relief from the searing heat and an improved moisture profile, and the sooner the better. The crop is rapidly advancing towards it key reproductive stage of pollination.
If relief is not seen by the end of the month, yield forecasts for this year crop will certainly decline. At the moment the USDA is still forecasting an average yield of 166 bushels per acre, a record high.
Total production is forecast at nearly 14.8 billion bushel, also a record, while ending stocks are expected to swell to a 7 year high of nearly 1.9 bil. bu. Under this scenario I’d argue Dec-2012 corn price would likely challenge the $4 level sometime this fall, well below current levels near $5.65. At this point I believe it very unlikely production will reach the current USDA forecast.
My best guess at the moment is that the market has discounted an average yield of somewhere just under 160 bu. per acre. If the US were able to achieve an average yield of 158 bpa, we’d still be able to produce just over a 14 bil. bu. crop while enabling stocks to build to nearly 1.2 bil. bu. Under this scenario I’d argue the fall lows would most likely fall somewhere in the $4.50 - $5.00 range.
If near-term relief is not found and conditions continue to deteriorate, I’m afraid this year’s average yield will be no better than last year’s 147 bu. per acre, and total production at 13.1 bil. bu. If this were to occur, based on current usage forecasts, corn stocks would fall under 200 mil. bu. This level of supplies would be unsustainable placing the corn market in a severe rationing situation.
Yields this low would like propel corn prices up toward the $6.50 - $7.00 range, or higher, in order to shave at least 500 – 600 mil. bu. off of demand, while maintaining supplies at minimum pipeline levels.