December corn dropped a quick 26 3/4 cents last week, flipping from its highest prices in three months to a new low in 2017 in what seemed like the blink of a forecast. Actually, weather forecasts for the Midwest had been mostly bearish the past two weeks, but support finally gave way last week.
The hot weather that threatened crops in the central Midwest in early June have retreated, and each day last week a new seven-day forecast showed a new blob of rain plastered over the eastern U.S., reaching just far enough west to include Iowa and Missouri. Traders, some of whom are still human, gave up on row crops and left us with Friday's new low in corn.
As I put together Friday's DTN Closing Market Video to explain corn's bearish change in trend, I couldn't help but notice that all was not paradise in corn country. Earlier Friday, it became apparent that the morning's rainfall amounts were more than what was forecast, and the National Weather Service posted flood watches along the Mississippi Delta and Ohio River Valley. Reports of flooding also came in from Michigan and Ontario.
After mulling over the contrast of last week's bearish price response and obvious problems in the field, it seems fair to say that traders are being more swayed by forecasts that look better than actual conditions. Technically, Friday's new low was obviously bearish, but fundamentally, this does not look like a corn crop headed to a record national yield.
As I outlined two weeks ago in the article "Stingy Corn Prices Try Again," USDA expects world corn production to fall short of consumption by 1.2 billion bushels in 2017-18 and, of course, 14.1 bb of estimated U.S. corn production is an important part of that projection.
The Acreage report from USDA, due out on Friday, will give a gross estimate of corn plantings and is expected be down about 4 million acres from last year. Given this year's wet spring, more acres could be trimmed by the time we get to USDA's October World Agricultural Supply and Demand Estimates (WASDE)report.
Going by USDA's crop ratings released June 26, this year's corn crop is starting a step down from a year-ago ratings, and the current weather pattern has not helped. Indiana has been a rain magnet with 19% of the corn rated poor or very poor, up from 7% a year ago. The same ratings are at 10% for Illinois and 7% for Ohio, both up three percentage points from a year ago.
Poor-to-very poor crop ratings in Iowa, Nebraska and Minnesota are close to last year's low totals. Nebraska is on the drier western edge of the Corn Belt, but for all three states, record yields are still possible. However, South Dakota at 17% and North Dakota at 10% are both higher than a year ago with drought conditions in the northwestern Plains not going away yet.
Recent forecasts that place moderate summer temperatures over the Midwest are certainly beneficial to crops, but the familiar pattern of a dry Western Corn Belt and a wet Eastern Corn Belt is not helping this year's problems. Yes, there is plenty of growing season still ahead, but these early crop problems will not be easy to overcome.
We are now in the time of year when corn prices typically trade lower until fall, so hopefully, producers already have price protection in place. For traders, I understand corn's new downtrend looks appealing, but this is not the same market environment as 2016 when higher U.S. ending corn stocks were anticipated. Given corn's problematic start in 2017, this may be one short trade to sit out.