(July 1 2012) Most of the action in corn futures occurred in the last week of the month as dry weather in the U.S. mid-west caused corn prices to post very aggressive gains. In the end, corn prices finished June at $6.51 a bushel; corn prices started the month at $5.60.
In the last week of the month, corn futures staged their biggest rally in four-years as hot, dry weather eroded prospects for this year’s crop while inventories plunged to a 16-year low. According to the United States Department of Agriculture analysis stockpiles of corn as of June 1 tumbled 48% to 3.149 billion bushels (80 million metric tons) from March 1, the biggest drop for the three-month period since 1996.
Weather overshadowed he fact that farmers have planted the most amount of corn in 75 years. Ordinarily, large plantings would be a virtual guarantee of a bumper crop; and this year a large crop is needed to replenish near record-low inventories and end a years-long cycle of food-price inflation and supply concerns. Because a bumper crop is needed, corn prices are especially sensitive to weather changes.
Dry conditions are threatening the corn crop that stretches from the central U.S. Plains to the eastern Corn Belt; and the forecast shows little relief in sight as corn enters its crucial pollination stage. A record corn crop is still within reach, but hot and dry weather already reduced the harvest by 1 billion bushels as analysts cut their yield forecasts by 4% since May.
Some farmers are already comparing this season’s weather to the summer of 1988, when the central Corn Belt suffered significant crop losses. Field conditions were hot and dry early this spring, similar to what happened 24 years ago when local crops, especially corn, were disseminated by lack of summer rains. “Clearly it’s one of these nasty droughts. If it doesn’t surpass 1988, it certainly is going to rival it or be among the so-called great droughts we’ve had in the past 30 years,” said Bob Nielsen, extension agronomist at Purdue University.
Looking forward, traders are expecting corn prices to be volatile- and unpredictable, as they respond in a knee-jerk reaction to the weather. Due to fundamentals; technical buying and selling will also be a major factor on prices.