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Published August 04, 2011, 10:53 AM

Markets eye heat’s impact on crops

It appears a tropical storm will make its way into the Gulf and perhaps bless part of Texas with some much-needed rain.

It appears a tropical storm will make its way into the Gulf and perhaps bless part of Texas with some much-needed rain.

Commodity Weather Group has indicated that most of Ohio and Indiana, in addition to the southern half of Illinois, Iowa, and Missouri will have closed out the month of July with the highest monthly average temperatures since the late ’40s. The similar years of 1995 and 2000 saw a 9 percent decline in USDA figures in the corn yield largely because of high nighttime temperatures. We should recall that we experienced a similar happening in 2010. Therefore, the trade will be cognizant of August temps across the southern one-third of the Midwest and how much above normal temperatures are running.

Recently, pictures from the Lincoln (Neb.) Journal Star circulated amongst the trade, showing an ear of corn that had not pollinated well. A crop scout indicated that as much as 40 percent to 50 percent of the crop could be just as behind in the pollination process.

After many years in the business, the crop scout said he had not seen anything worse and noted that the heat in the fields was the hottest he had experienced under the canopy. It was a deceiving picture when looking at the lush, dark green color of the crop. The corn market grossly underestimated the crop under such heat last year, but this year’s heat wave appears to be worse and more widespread.

Corn should have good support in the $6.45 to $6.50 per bushel range. Another clue about the future of the corn crop is that corn made lower lows on the first day of July and since has rallied nicely with the potential of a higher monthly close.

I think this portends that corn futures could take out the high of July (703¾). A similar year was 1983, when corn put in a low on the first day of July and rally to new highs in August. That was the peak year.

Chinese demand continues to be tepid at current prices, but not high enough to choke off ethanol. Brazil is buying record amounts of U.S. ethanol, as soaring sugar prices are encouraging refiners there to turn less sugar cane into fuel.

Also adding to the problem is that sugar cane production is down decisively, creating rhetoric that the Brazilian mandate for biofuels will be lowered from 25 percent to 18 percent to stretch supplies.

Both corn and sugar cane now are a form of energy, and one source being strong should help the other. The U.S. corn yield is more than 3 bushels per acre lower than the latest WASDE estimate at 158.7 bushels per acre, according to a recent poll released by Reuters. If true, the carry-out will have potential to decline to 373 million bushels and set a new record low stocks-to-usage ratio of 5 percent. Corn is a coarse grain and so is sorghum. Crop conditions on sorghum have been showing deterioration.

World stocks of coarse grains are very tight. It may be that the concern and question of just how many harvested acres we have for corn, an indecisive political circus continuing to play out in the news media, may be adding uncertainty to the investment dollars of funds. Participation is low at this time. Regardless of how the vote on a new budget plan turns out and whether the U.S. defaults on its obligations, the Federal Reserve most likely will have to print more money. As this occurs, the resulting inflation in food prices should create money investing to move into ag commodities, Perhaps this market pushes stronger when the trade has a better idea of potential yields.