The price of corn has rallied through the summer months despite USDA projections for a record sized crop. University of Illinois Ag Economist Darrel Good wonders if the recent part of the rally has as much to do with the weather in August as it does growing demand for the crop.
Based on preliminary data collected by the Illinois State Water Survey - his state had one of the warmest and wettest summers on record. The statewide average temperature for summer (June–August) in Illinois was 76.4 degrees - 2.7 degrees above normal and the seventh warmest summer on record. The average rainfall for summer in Illinois was 16.7 inches - 5.2 inches above normal - ranking as the sixth wettest summer on record. Statewide records extend back to 1895.
In the month of August - temperatures were 3.2 degrees above average - making it the 13th warmest August on record. August rainfall was close to normal with a statewide average of 3.4 inches - but significant areas in east-central and southern Illinois received half that. So August was tough on the corn crop in parts of Illinois - and early yields have been described as disappointing...
The more recent strength in corn prices is related to concerns that the US average yield might fall short of the USDA’s August 12th forecast of 165 bushels. Very early yield reports in the Midwest have been described as disappointing. It’s a little dangerous to base expectations on early results. Also, it is yield that is relative to the USDA forecast not yield, not relative to a third-party expectation that is important. With year-ending stocks already projected to be less than 10% of projected consumption a lower average yield would point to very tight stocks. Under the ‘strong demand’ scenario currently being experienced higher prices would be required to force a substantial reduction in consumption.”
Given that - Good reminds corn farmers that December futures in Chicago had reached their highest levels the last week of August since early January. He says those four-and-a-half dollar highs may provide heavy resistance unless USDA confirms prospects for a smaller corn crop in its September 10th Crop Production Report. He has this marketing advice...
“The current price of December futures is well above the price guarantee for revenue insurance products, so that pricing a portion of expected production is warranted. For those with on-farm storage the current price structure favors selling corn for later delivery.
On August 27 the average bid for harvest delivery in central Illinois, for example, was .68 cents under July 2011 futures, that basis is likely to strengthen to about .20 under by next spring, offering a return of .48 cents per bushel for storing corn for 9 months. At 6% interest the interest costs of storing $4 corn for 9 months is .18 cents per bushel, leaving .30 cents to cover storage costs.”
For more from Darrel Good - visit the University of Illinois Farm DOC website.