Rains Too Late for Corn

The announcement that rains will be finally arriving in some areas of the Midwest is a bittersweet forecast if it comes true, as once the corn is pollinated no amount of rain will change the yields of corn.

All that can help corn at this stage is to help the kernels that do grow to expand a little bit larger. It won't produce more kernels on the cob.

The key importance of the rain is for it to hit areas of the Midwest that still have corn that hasn't pollinated and is in decent condition. There is no hope whatsoever for the rest of the corn at all.

Approximately 50 percent of the corn is in poor or worse condition, meaning that it's a total loss.

Most investors are evidently clueless as to this reality, as so far in the trading week they've pushed down the price of December corn by 5 percent, even though the damaged corn will not recover or respond in any way.

Again, all the rains can do is help corn that is still in decent condition and not pollinated. And that assumes this rain will hit the right areas of the region.

Now the response to soybeans was a little more realistic, as they pollinate a little later than corn, so have a better chance of responding in a positive manner to a quality rainfall. Soybeans were down over 4 percent as of Tuesday.

Quality rainfall is rain that is steady throughout a period of time, and not a quick drenching which results in most of the moisture running off instead of settling in to the soil.

Another thing to take into account is the data released by the U.S. Department of Agriculture is far more positive than most of those that know about and cover the grain segment, and so it should be assumed that their numbers are better than the actual results on the ground.

So we can assume more than 50 percent of corn is poor or very poor, and that 26 percent of the corn that is listed as good to excellent by the USDA is probably closer to 20 percent.

Corn just recently broke a record of $8 a bushel, and Goldman Sachs (NYSE: GS) sees it climbing to as high as $9 a bushel.

There is no doubt the USDA will report far worse numbers in the weeks ahead, so traders and investors should be aware of that.

It's very doubtful corn prices will continue to fall in light of the existing corn conditions that are much worse that being reported by the USDA.

Few traders are following the increasing drought conditions in parts of Europe, as well as in Australia.

Most knowledgeable traders see this as a buying opportunity, although they would like to see corn drop about another 20 cents or so before entering back in.