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Corn Prices Soggy on Rain Forecast, Ahead of Crop Report

After a multi-week rally, grain prices slumped Tuesday, as traders caught a whiff of summer rain in the forecast ahead of a major government crop report Wednesday.

Farmer Brian Pilotte holds an ear of immature corn while looking over a drought stricken field in Idaville, Indiana, U.S.
Bloomberg | Getty Images
Farmer Brian Pilotte holds an ear of immature corn while looking over a drought stricken field in Idaville, Indiana, U.S.

Grain analysts expect both to be disappointing.

The Department of Agriculture’s WASDE report, expected at 8:30 am ET Wednesday, is an update on the state of major U.S. and global crops and U.S. livestock, and is much-awaited given the record heat and drought conditionsin the Midwest.

The corn crop is the most in play, since it has been pollinating in record heat and dry conditions, guaranteeing underdeveloped plants. The USDA has so far forecast a bumper corn crop, yielding 166 bushels per acre, on the largest amount of acreage planted since 1937.

As the hot, dry weather persisted in recent weeks, analysts have slashed their estimates to below 150 bushels per acre. But the USDA does not send representatives into the field to survey the crop until August, so it is not expected to change its expectations as much as industry analysts already have.

“It might be one of those things where we watch it trade for 20 minutes, and then go back to trading the weather forecasts,” said Rich Nelson, director of research at Allendale.

“You could see them put yields at 157 to 161,” said Nelson, adding his number for end-July is 145.3 bushels per acre. USDA will also change its forecast for the total crop, now at a record 14.8 billion bushels.

USDA’s weekly progress report Monday showed the corn crop with only 40 percent in good-to-excellent condition, down from 48 percent last week and 56 percent the week earlier. In Indiana, one of the hardest hit areas, just 12 percent of the crop was in good to excellent condition.

“It’s going to be meaningless unless the USDA is going to do something shocking, which I don’t think they would do. We’re stuck here for the next four weeks with a market just speculating on yields,” said Randy Mittelstaedt, director of research at R.J. O’Brien.

“It’s getting very interesting, very quickly. The difficult thing with corn is once you get past the next two weeks, you’ve got the whole crop pollinating and there’s no going back…You’re locking in your yield losses in the next two weeks,” he said.

Field corn plants with wilted and dying leaves stand in a dry field in Idaville, Indiana, U.S.
Bloomberg | Getty Images
Field corn plants with wilted and dying leaves stand in a dry field in Idaville, Indiana, U.S.

Nelson said weather forecasts for light rain in the eastern Midwest over the weekend, and then across a bigger section of the corn belt next week, weighed on prices Tuesday. He also said PFGBest was a contributing factor, as positions were liquidated, pressuring commodities prices, after the firm was accused Monday of misstating financial records.

“What’s interesting is what I see in the weather forecast is nothing that’s a game changer, nothing that goes across the heart of the corn belt. It’s just dancing around,” said Mittlestaedt.

Shawn McCambridge of Jefferies Bache agreed. Some places where rain is expected are already seeing severely damaged crops.

“You can stabilize the crop to where it is right now, but where it is right now, significant production losses have occurred,” he said. “I’m pushing a number that is closer to just under 140 (bushels per acre)."

December corn futures were down nearly 2 percent Tuesday around $7 per bushel. Wheat and soybeans were also lower.

Higher grain prices are already being felt across the economy. Analysts have been downgrading shares of Tyson Foods due to the impact on food prices. Other food stocks such as Pilgrim's Pride and Smithfield Foods have been weakening.

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