Promise of bountiful harvest pressures corn prices

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Corn prices could lose another 10 to 15 percent on the prospect of a bumper U.S. corn crop, on top of a more than 30 percent decline since mid-June.

This year's crop is on track to be the largest ever, after last summer's heat and drought shrunk what could have been a bountiful crop.

The government this week forecast a bumper corn crop of 13.8 billion bushels, compared with 10.8 billion bushels last year, but 187 million bushels lower than its prior forecast. Still, the forecast puts it well above the last record crop of 13.1 billion bushels in 2009/2010. December corn futures fell about 1 percent Tuesday, after jumping 2 percent to $4.64 a bushel Monday because traders had expected the government to increase its corn forecast, not cut it.

"I don't see anything that materially changes the view that it's overvalued," said Randy Mittelstaedt, director of research at R.J. O'Brien. "I still anticipate the market moving lower. December futures are easily 10 to 15 percent overvalued, ... that is of course assuming no early freeze. At this point of the game, you have to make that assumption. Our view will be adjusted [based] on what happens with the weather. This is the first real estimates of the crop."

CBOT corn futures over 3 years

The U.S. Department of Agriculture also lowered its corn yield forecast for 2013/2014 to 154.4 million bushels per acre, down 2.1 million bushels from last month. That is well above the yield last year of 123.4 million bushels.

This year's conditions are vastly different from last year when corn futures prices at the CBOT were 45 percent higher, at their all-time high of $8.3875 per bushel. Drought took a huge toll on last year's crop, after it had started with the promise of being one of the largest crops ever.

This year's crop got off to a late start, with a three-weekplanting delay for some farmers because of unusually cold and wet spring weather.

(Read More: Soy beans gain on crop forecast )

Rich Nelson, director of research at Allendale, said he could see corn prices lose at least another 10 percent, but there are factors that could reverse the trend. He said some of the risks for the harvest include a drier forecast for the rest of August, which could affect yield. There is also the risk that fewer acres than expected will be planted when USDA officials go into the field in coming weeks. Another risk is that the late harvest will be met with freezing conditions.

"We'll be doing an active part of the harvest in November," he said.

The government forecast for soy beans was cut to 3.26 billion bushels, down 165 million due to lower harvested areas and reduced yields. Drier August weather could have a bigger impact on soy beans, which have yet to set pods. "Now we're getting in the key period that decides yields for soy beans," Nelson said.

The cheaper corn is helping farmers who need to feed livestock, and it's already showing up in some consumer prices. For instance, Chipotle Mexican Grill, when it released earnings last month, said it saw food prices stabilizing and it no longer expected to make previously announced price increases for the balance of the year.

(Read more: US hog farmers back in black for first time in year)

"Farmers have basically sat watching this corn price drop for months. Few if any of this stuff is locked in. By this time most farmers would have had a quarter of their new crop priced in," he said. "Farmers are in a very tough situation. One slight benefit is crop insurance. Revenue-based crop insurance will cushion the blow."

Corn has seen elevated prices in the last couple of years, and even ethanol use is peaking, since the refiners are close to achieving the 10 percent mandated threshold and gasoline demand has been falling. The 4.7 billion bushels of corn for ethanol this year is expected to grow to 4.9 billion next year, said Nelson. But that is below the 5.02 billion in the 2010/2011 crop year.

(Read more: Ethanol mandate, 'blend wall' looms for refiners)

—By CNBC's Patti Domm. Follow her on twitter @pattidomm