The United States corn market appears to be ignoring the stressful weather of the past few weeks and the dry forecasts across the corn belt for July, getting caught up instead in the broader worries of a global recession and the food inflation fears that have been dominating financial market wires of late.
Hot weather has been a feature of June across much of the corn belt, with several regions experiencing both day and night-time temperature highs rarely seen before the summer solstice.
There was some temperature reprieve last week, but weather models are trending warmer again beyond the first week of July, with the long range forecasts expecting the warm and dry weather to continue for much of the month.
July is the money month for US corn, with the crop moving into its reproductive phase. It starts with the pollination stage, the most critical part of the crop cycle as it is the primary determinant of plant yield. Immediately after pollination, the corn ear begins to fill out, and the kernels fatten. Hot weather alone is not an issue, but if accompanied by poor soil moisture reserves, final production ultimately suffers as both the kernel size and weight fail to reach their full potential.
And that is precisely the issue this year, with most Midwest states almost certain to carry severe moisture deficits into July. As of late last week, Minnesota had the worst June rainfall shortfall amongst the major producing states, having received 48 per cent of its average June precipitation. Illinois had only received 53pc of its June average and Indiana was only faring marginally better at 55pc. South Dakota was sitting at a similar level, Nebraska was at 64pc and Iowa was in the middle of the pack at 70pc.
The GFS weather model has it dry for most of this week, with showers rolling into the corn belt over the weekend and into next week. The big issue right now is showers simply won't cut it. Evapotranspiration will be at its season highest in July, and the crop needs significant rainfall to erase the moisture deficit and get it back on track. The one saving grace is the GFS model has a general easing in mercury levels over the next few weeks. However, there is certainly no consensus, with the European model showing a hotter and drier scenario for the same period.
While not a disaster as yet, last week's crop progress report from the United States Department of Agriculture confirmed the effects of the recent weather conditions. As of June 19, 70pc of the nation's corn crop fell into the good-to-excellent crop rating category. This was down from 72pc a week earlier but five percentage points higher than a year earlier.
The standout was Iowa, the country's biggest corn-producing state, which came in at 83pc cent good-to-excellent, down three points across the week. Kansas and Ohio, the sixth and eighth-largest producing states, respectively, came in at the lower end of the rating range. Kansas was rated at 55pc good-to-excellent, also down three points compared to the previous week. The rating dip was much larger in Ohio, falling from 66pc on June 12 to 58pc a week later.
Observations from the field are mixed. The crop is said to be shorter than last year in many regions due to the later planting, with paddocks showing varying signs of moisture stress. The latest planted crops are reportedly in pretty bad shape, suggesting their root systems may be quite shallow, making them very susceptible to a hot and dry July.
Corn emergence stood at 95pc nationwide on June 19, up seven percentage points week-on-week, four points lower than the same week last year but smack on the five-year average. North Dakota is dragging the chain big time due to the rain-induced planting delays, with 68pc of the crop out of the ground compared to 50pc a week earlier and a five-year average of 93pc.
While hot and dry weather does not necessarily spell disaster for the US corn crop, the higher-yielding seasons tend to experience cooler and wetter than normal conditions in July. With the moisture deficit currently in place across much of the corn belt and the hot and dry forecast for July, it is becoming increasingly difficult to see trend or above trend yields being achieved this season.
The culprit, of course, is La Nina. It has supposedly caused the Pacific branch of the jet stream to be weaker than normal, favouring more ridging in the country's midsection. Basically, the jet stream has been pushed north, which is the last thing the corn belt needs if it wants a wet summer.
Yield forecasters are already decreasing yields in many regions due to late planting and the below-average rainfall this month. Some models have the national yield as low as 169 bushels per acre (10.61 tonne per hectare) when factoring in some assumptions around the July weather forecasts. This compares to the USDA's most recent estimate of 177 bu/ac (11.11mt/ha). A drop in national yield of that magnitude would wipe more than 16 million tonne of US production and have serious ramifications for US exports, and therefore, global supply.
But it seems the corn market is seriously underestimating the enormity of the potential yield issue in the absence of substantial rainfall. After closing at a month high of US788.25 cents per bushel on Thursday, June 16, July futures had a small down day on the Friday to close that week on US784.5 c/bu.
But screens quickly turned red once markets opened up again on Tuesday of last week. Both Tuesday and Thursday ended up being substantial down days, dropping 3pc and 2.8pc in market value, respectively. Wednesday was up around 1 per cent, and then values consolidated into the weekend with a 0.5pc rally last Friday. The market closed out the week at US750.25 c/bu, down a total of US34.25 c/bu, or 4.4pc in the four days of trade.
And in case you were wondering, there was no futures trade on Monday of last week with the US celebrating their newest official federal holiday. Juneteenth is the oldest nationally celebrated commemoration of the ending of slavery. On June 19, 1865, a Union General rode into Galveston, Texas, to announce that the Civil War had ended, and slaves had been freed. President Joe Biden signed the legislation that made Juneteenth a federal holiday last year.
Fundamentally, the corn market remains bullish, despite the historically high values. While it is far too early to drastically cut US corn yields, crunch time is nigh. A wet July is needed across the entire corn belt just to stabilise the production outlook. Anything less and the market could turn into a stampede.
Sign up for our newsletter to stay up to date.