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Unplanted acres and eroding yield potential sparked rallies from mid-June price lows. Yet prices moved to mid-July highs on short-covering by trading funds that moved from a net-short position in corn and soybean futures to a net-long position.
It might sound like a copout to say price action depends on late July and early August weather and its impact on yield potential, but the truth isn’t a copout.
Let’s assume too much water scrubbed 2% from the national average corn yield. That’s conservative, right? That pulls the yield down to 163.5 bu. per acre, dropping the crop to about 13.26 billion bushels, or 270 million bushels below USDA’s July crop projection. Assuming about 20% of the crop shortfall is offset by less demand, 2015/16 corn carryover would be cut to about 1.38 billion bushels. That’s low enough to support $4.50 corn and an even better bid in December 2016 corn futures based on lower supply-side security for the 2016/17 marketing year.
A 3% yield loss from the 166.8 national average trendline corn yield would drop the yield to 161.8 bu. per acre, suggesting a crop of about 13.12 billion bushels and, perhaps, $4.75 December futures. Alternately, a 4% cut suggests a yield of 160.1 bu. per acre; a crop of 12.98 billion bushels; and the possibility of $5 December futures.