The concerns over US corn crop yields have eased on improving weather conditions leading to drop in prices after recent gains, but market participants will track the weather conditions in July to get a better picture.
Weather conditions in corn-belt of the US have now become favorable for the planted corn as ongoing rainfall has eased crop damage concerns anticipated earlier due to dryness. Weather in the US turned warm and dry in June, after remaining extremely cold and wet during May.
In its June 21 crop progress report, US Department of Agriculture showed marginal improvement in the crop ratings to 72% good to excellent from 71% a week ago. This led the July corn futures contract on the Chicago Board of Trade to weaken to $3.17 per bushel on June 25.
The contract had risen to $3.32/bu on June 18 from $3.29 on June 15 after USDA reported a decline in conditions ratings for US corn to 71% from 75% seen in the previous week.
The USDA has estimated corn production in the US to be at a record high of 15.99 billion bushels for the marketing year 2020-21.
Owing to the record high production, and unprecedented demand destruction from ethanol and feed companies, total supply of corn in the US in 2020-21 marketing year, including carryover stocks, is seen rising to 18.12 billion bushels, from 15.88 billion bushels a year ago, according to USDA's June World Agricultural Supply and Demand Estimates.
Drop in ethanol consumption due to movement restrictions, and temporary closure of meat plants amid the coronavirus pandemic destroyed demand for corn in the US.
The oversupply of corn in the upcoming marketing year is going to keep prices under pressure, analysts said.
Notably higher prices would necessitate both lower-than-expected yields due to adverse weather, and stronger-than-expected demand, said Arlan Suderman, chief economist with INTL FCStone.
"Both are possible, but evidence of either is still lacking," he added.
PRICES UNLIKELY TO RECOVER
"The price outlook for US corn for the upcoming marketing year is not good," said Stephen Nicholson, president of Rabo Agrifinance.
"Our view is that in the 2020-21 crop year, corn prices are likely to range between $2.75 and $3.25/bu," Nicholson added.
The USDA has projected season average farm price for US corn in 2020-21 at $3.20/bu, which is the lowest since 2006-07.
"Unexpected purchases by China and/or a faster return of ethanol demand could boost demand, but a normal crop still leaves us vulnerable to sub-$3/bu cash prices in the year ahead," said INTL FCStone's Suderman.
"If the USDA comes out at 97 million acres under corn on June 30, that's it. The corn market will be just done. By done I mean, you can see prices at $2.9/bu," said Pete Meyer, head of grains and oilseed analytics at Platts Analytics.
The USDA will release its annual acreage report on June 30.
"There is a pretty good chance USDA will lower planted corn acres in the June acreage report," Nicholson from Rabo Agrifinance said.
He added that economics does not support planting of 97 million acres under corn. "From the time the survey was taken in March, until planting began, corn futures fell an additional $0.50-$0.60/bu. This likely moved some producers from corn to soybeans," he said.
Analysts expect USDA to keep yield estimates unchanged until August.
EYES ON JULY
Growing corn crop is vulnerable to hot and dry weather during the pollination period, which typically occurs between early to mid-July, analysts said.
However, the weather is likely to remain largely favorable during the period this year.
Weather forecast for July shows above normal temperatures across most of the plains and the Midwest, but extreme heat is not currently expected, said Kyle Tapley, senior agricultural meteorologist with weather agency Maxar.
"Below normal precipitation is expected across the north central plains and the western Midwest, while near normal precipitation across the eastern Midwest should generally favor the corn crop," Tapley said.
Above normal temperatures and below normal precipitation during July may lead to some crop stress across the western portions of the corn belt, but no major problem is expected, he added.
The yield projection for 2020-21 US corn by the USDA is at 178.5 bu/acre, compared with 167.80 bu/acre a year ago.
