Rainfall amounts are shaping the markets

By Doug Tenney, Leist Mercantile

The first two weeks of June were extremely disappointing days of no rain for Ohio producers. Rainfall amounts continued to be drastically varied across the state. While many desired a good soaking rain, it just did not happen. Central Ohio received just a smattering of rain during the second week of June with rainfall just amounting to .1 to .4 inch. Meanwhile, rainfall in the western Midwest and stretching across the northern cornbelt states of South Dakota and Minnesota was a common occurrence more than once a week. Rain totals were often one inch or more. It was extremely frustrating as Ohio producers not only watched their yield potential shrink, but watched in utter shock as grain prices dropped severely for days on end.

This curled corn in mid-June shows the early season moisture stress in Central Ohio.

The USDA supply and demand report pegged the 2012 U.S. corn yield at 166 bushels per acre. This number was unchanged from the previous report. Numerous traders had expected the 166-bushel yield to be reduced due to numerous locations across the Midwest with moisture deficiencies of moderate to severe implications. Their estimate of new corn ending stocks at 1.881 billion bushels was unchanged from the previous report.

While it may have been a foregone conclusion that USDA would reduce the yield, it was not without merit. Many locations across the Midwest have seen weather stresses for corn this growing season. Most prevalent has been a lack of rain during May and June. Many traders and analysts alike have been talking that the U.S. corn yield is somewhere from 158 to 161 bushels per acre. It is extremely rare for USDA to change yield projections within the June supply and demand report. Also, USDA seems pretty entrenched that old crop corn ending stocks do not need to be lowered. Those two factors left me to think it would be very likely for USDA to ditto the May tables and stick the June 12 date at the top. That is exactly what they did.

Crop ratings for both corn and soybeans declined during the second week of June. The declines were more than the trade was expecting. Yet, prices were tardy in moving higher. Numerous reports indicate that corn is about two weeks ahead of normal. It certainly was a weird month of weather in June. Multiple times we saw dry conditions across the Midwest with rain in at least the western Midwest 3 to 5 days away. Then in the second week of the forecast, ideas of ridging (a weather system that develops in the Midwest or Southeast that can prevent rains from moving across the area) were at least mentioned. Producers know that the talk of ridging coupled with daily temperatures above 90 degrees can be most devastating as yield potential can drop severely in 10 days or less. The late June ridging was lacking the 90-degree temperatures.

The June 29 grain stocks report will go a long way in determining grain prices this summer. Last month some traders had already suggested corn prices could be up or down the 40-cent limit that day. During the past 18 months traders have had a very difficult time forecasting what USDA numbers would be published. Almost every time in that period the quarterly corn stocks number has been a huge surprise which resulted in limit up or down price movement for corn.

Nationwide corn yields of 163 or higher could send December CME corn to $4.50-$4.75. Yields below 153 could push it back to the $6 mark. Should rains continue to take place in the western Corn Belt but not in Ohio, producers could be looking at a year of both low yields and disappointing prices.

 

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