Assessing the Possibility of Below-Trend U.S. Corn Yield
Following an increase in stock-to-use levels in 2016/17, and given Agriculture Department projections for total use to decline 1.5 percent in 2017/18, the fundamentals driving the corn market at this point in the growing season are weather-driven supply expectations, more commonly known as Mother Nature.
Adverse changes in temperature or precipitation would indicate a shorter crop than projected, while favorable weather would point toward another bumper crop. The former is more likely. USDA is currently projecting for corn yields to drop 2 percent in 2017/18 to 170.7 bushels per acre.
Weather expectations drove new-crop corn prices to contract highs of $4.16 per bushel in early July. Following the June Acreage report and July World Agricultural Supply and Demand Estimates report, more favorable temperatures and precipitation led to prices falling toward $3.90 per bushel. Put simply, the market is trading on the weather premium.
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