Hot Weather Sets Grain Market on Fire

Published on: 07:46AM Jul 02, 2012

Extremely hot weather in the Corn Belt has left crop conditions at dangerously low levels and grain prices reaching nine month highs. Illinois and Indiana have been the hardest hit by drought, which rank second and fifth in corn output respectively. Expectations for a record corn crop in 2012 are all but eliminated and the question now is “How tight will stocks be?”

The weather concerns offset macro issues and the latest USDA acreage report, which said farmers planted more corn and soybeans than traders had expected, with the corn acres the largest since 1937 and soybeans the third highest ever.

Grain Prices

Corn prices closed at $6.72 per bushel and increased by 21.0% in June due to a substantial deterioration in crop conditions. As of June 25, 2012 corn conditions have deteriorated to 56% of the crop in good or excellent condition, compared to 72% last month and 68% last year. In the June WASDE, the USDA kept the average corn yield for 2012/13 at 166.0 bushels per acre, but we expect a substantial decrease in the yield and ending stocks in the July report.

Corn stocks as of June 1, 2012 were estimated at 3.15 billion bushels, a 14% decrease from last year. Of the 3.15 billion bushels, 1.48 billion are stored on farms, down 12% from 2011. 1.67 billion bushels were being held in off-farm locations, a 16% decrease from last year. Disappearance from March 2012 to May 2012 was 2.87 billion bushels a year prior.

Hot weather and fears of tight supplies left soybean prices 12.9% higher in June to close at $15.13 per bushel. Soybeans in good or excellent condition are at 53% compared to 65% last year. As with corn, we expect a major change to the soybean balance sheet in the July WASDE.

Soybean stocks as of June 1, 2012 were estimated at 667 million bushels, a 8% increase from 2011. On-farm stocks were 179 million bushels, a 18% decrease from a year prior. 488 million bushels were located in off-farm locations, a 22% increase from last June. Disappearance from March 2012 to May 2012 was 707 million bushels, a 12% increase from last year.

Wheat prices increased by 14.2% this month, closing at $7.39 per bushel on the back of the strength in the corn market. Spring wheat conditions are favorable as 77% is in good or excellent condition and only 4% is in poor or very poor condition. Winter wheat conditions continue to outpace last year's conditions with 54% of the winter wheat crop in good or excellent condition, a 19% increase from last year.

Wheat stocks as of June 1, 2012 were estimated at 743 million bushels, a 14% decrease from a year prior. 112 million bushels were held in on-farm locations, down 14% from last June. Off-farm stocks were estimated at 631 million bushels, a 14% drop from a year ago. Disappearance from March 2012 to May 2012 was 457 million bushels, a decrease of 19% from last year.

Planted Acres

U.S. farmers are expected to plant 228.5 million acres of corn, soybeans, and wheat for the 2012 crop year, a 3.3% increase from 2011's 221.3 million acres. Improving agricultural economics and grain prices are incentivizing farmers to plant as many acres as possible.

Corn planted acres for 2012 were estimated at 96.4 million acres, the largest acreage since World War II and a 5% increase from 2011's 91.9 million acres. This is an increase from March's estimate of 95.9 million acres, but not surprising as on average the USDA increases planted corn acreage by 1.3% from the March to June acreage report.

Soybean planted acres were estimated at 76.1 million acres, an increase of 1% from last year's 75.0 million acres and the third highest on record. Record breaking planted acreage is expected in New York, North Dakota, and Pennsylvania. South Dakota expects to tie its previous record high. The increase in soybean acres planted was due to an early winter wheat harvest which allowed farmers the potential to double-crop with soybeans.

Wheat planted acres were estimated at 56.0 million acres, an increase of 3% from 2011's 54.4 million acres. Not much has changed since March's Prospective Planting report of 55.9 million acres as high wheat supplies provided little incentive for farmers to plant wheat.


We expect crop conditions will continue to deteriorate, but over the next few weeks corn pollination will dictate how severe yield damage will be due to harsh weather conditions. The U.S. corn crop is entering the critical pollination growth stage which is when kernels become pollinated and grow. If extreme hot and dry weather persists throughout the pollination period, major yield loss will be felt throughout the Corn Belt.

Poor crop conditions have lead to higher crop prices which will help offset farmer yields losses. The farmers that have above average crop conditions paired with the high new crop prices will have much higher income post harvest which could translate to even higher farmland values. Because farmers make up the overwhelming majority of farmland buyers, farmers will be willing to pay higher prices from property within their farming operation radius.

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