Corn and soybeans rally as crop conditions deteriorate

We are into the key growing period for US crops and during this time probably 90 percent of market moves are weather-related. The price of corn has rallied more than six percent in just two days following the weekly crop progress report which stated that only some 63 percent of corn was rated good or excellent as of June 17. This reading is down from 66 percent last week and 70 percent a year earlier (below chart). Hot and dry weather in two biggest corn producing states of Iowa and Illinois has triggered this deterioration in crop conditions.

Source: Bloomberg L.P.

The price of new crop corn has been gyrating between USD 5.0 and 5.5 per bushel during the last couple of months with the move down to the lows last week being triggered by the United States Department of Agricultures (USDA) decision to leave its yield forecast at a record high of 166 bushels per acre in the June WASDE report. Traders had been expecting a downgrade considering the deterioration that had been witnessed. Following the new reading of 63 percent, this concern would have been raised even further. It will lead to speculation that the USDA will have to downgrade its yield forecast in its next report due July 11, thereby supporting further price advances.

Traders are therefore currently torn between news from the fields and the continued projections for a record crop which, if materialized, will help to alleviate some of the tightness that has been witnessed during the last year.  That would also require an ideal US summer, something that is currently not happening but obviously can change if the rain arrives in time.

Turning to soybeans, the situation is not much better, with approximately 56 percent of the soybean crop currently being rated good to excellent. This is down from 60 percent last week and 68 percent a year ago. This update triggered a move above USD 13.50 per bushel, following a couple of weeks of consolidation and sideways action.