Chicago Board of Trade Market News
Outlook: December corn futures are 20 ¼ cents (3.2 percent) higher this week after worsening drought conditions in the Corn Belt prompted a round of short covering and panic buying at the CBOT. Rainfall in the key corn-producing states of Iowa, Illinois, and Indiana – among others – has been scant this year and the situation is drawing comparisons to the infamous drought year of 2012. Indeed, crops are heading into the key yield-defining period of July/August in worse condition and with more extreme drought than they did in 2012. USDA said just 55 percent of U.S. corn was rated good/excellent last week, the lowest value in 5 years and a score below that of 2012.
In response, futures have rallied sharply over the past two weeks with the December contract clearing the psychologically important $6.00 mark earlier this week. Farmer selling picked up substantially this week, according to industry sources, as producers who had previously marketed little of this year’s crop when looking at low-$5 corn decided to take advantage of strong basis and $6+ futures. Funds quickly reversed their former short position and are now net long corn (and other CBOT grains) futures amid the drought concerns. Looking forward, the weather and yield prospects will be the key arbiter of futures price action and the current hot, dry forecast for the Corn Belt suggests the rally is not done yet.
Ethanol production rose 3.3 percent last week to 1.052 million barrels per day as margins remain strong for the industry amid the “summer driving season”, which is the seasonal peak in U.S. gasoline demand. Ethanol stocks rose 2.6 percent from the prior week despite a 2 percent increase in gasoline consumption.
