A rising corn price was all weather related in early July as the market saw wave after wave of hot and dry conditions.
Not all analysts expect prices to continue to rise, though, as corn could price itself out of the market.
Peter Georgantones, an Abbott Futures commodity trader and account executive, said it would be tough to keep the December 2012 corn future moving along at such high prices.
“Corn is running out of steam at $7 here for new crop,” he said. “Our demand base is really eroding, from an export standpoint, from a feed standpoint, and ethanol plants are shutting down until fall time when they get new crop coming in.”
The December futures contract traded above $7 during the first week of July, but slipped back about 10 cents by July 6.
The CME Group September futures contract traded on July 6 at $6.945, December at $6.925, March at $6.99, May at $7.01, July 2013 at $7.02, and September 2013 at $6.34 per bushel.
Compared with futures prices two weeks earlier – on June 22, 2012, the September contract was $1.395 higher, December was $1.355 higher, March was $1.31 higher, May was $1.265 higher and July 2013 was $1.215 higher.
The traders noted the widening 2012 drought moving from south to north. The corn market also began likening 2012 to the drought of 1988.
The U.S. Drought Monitor on July 3 said that dryness intensified in large sections of the United States.
Hot temperatures in the 90s and 100s licked up any moisture.
“Daily high temperatures averaged above 100 degrees in the central and upper Southern Plains, extending eastward into parts of Missouri and Arkansas, and average temperatures for the week were 8 to locally 15 degrees F above normal from the Ohio Valley and upper Southeast westward through most of the High Plains,” said the U.S. Drought Monitor website.
The dryness has occurred during corn pollination time.
As of July 2, 25 percent of the U.S. corn crop was silking.
The nation’s corn crop was rated 48 percent good to excellent, 30 percent fair, and 22 percent poor to very poor.
“We are trading 150 bushels per acre right now,” said Georgantones. “You start getting down into the 145, really average yield of 146 bushels per acre, you are out of corn. You just don’t have a whole lot of corn out there.”
The corn crop looked pretty good in Minnesota and North Dakota – areas with more rainfall and/or cooler temperatures.
The North Dakota corn crop was rated 81 percent good to excellent on July 2, while the Minnesota crop was rated 82 percent good to excellent. Only 2 percent of North Dakota’s, and 4 percent of Minnesota’s corn, was rated poor to very poor.
Very hot temperatures and minimal rainfall were beginning to affect southern and central Minnesota during the first days of July.
Traders will be anxious to see the USDA’s World Agricultural Supply and Demand Estimates report on July 11 to note any changes to official estimates.
Georgantones said it is very usual to see corn put in new highs in August. He said that some ethanol plants are shutting down, with management waiting until more corn is available for processing.
Ethanol production of 35.99 million gallons for the week ending June 29 was the lowest weekly for 2012 with plant shutdowns a factor.
“People are suspecting that the trade will press the USDA and EPA regarding possible action on cutting up the ethanol mandate if the adverse growing conditions persist into the last half of July,” he said.
Should the EPA reduce the national ethanol mandate by 20 percent, demand for corn would drop by 1 billion bushels.
Domestic feed demand was also expected to lag as livestock eat less corn when it is hot.
The weekly export sales report was not favorable for corn either, with sales of just 153,500 metric tons (6 million bushels) for 2011 and 2012 corn for late June.
“We’ve learned this last year to substitute a lot of wheat (for corn), there is a large world rice crop around the world, and it’s amazing how creative the end users can get when they need to,” said Georgantones.
At one elevator in western Minnesota followed in this column, cash corn on July 6 was $6.82 per bushel with a basis of 15 cents under. Compared with the price on June 22 of $5.83, the price was 99 cents higher, but the basis had widened by 45 cents.
“For the most part, our demand base for corn is in trouble,” said Georgantones. “We are selling animals and feed is slowing down as well.”