Corn Prices Reach for the Sky

While corn may not be reaching for the sky these days, as the drought and hot temperatures continue to hamper the crop, corn prices on the other hand are soaring, reaching another record high on Monday, settling at $8.20 a bushel, a gain of 21.5 cents, or 2.7 percent.

December corn climbed to $8.14 a bushel, gaining 20.75 cents, or 2.6 percent.

At this time a boost in rain in almost all parts of the U.S. won't help the corn crop, as pollination has been completed, and when that's the case, nothing can change the outcome of the crop yield. All that can happen is the kernels may fill out a little more, but the number of kernels are now locked in.

The hope was fields that hadn't been pollinated would be aided by rain, but that hope has largely passed for the majority of the corn crop.

With little rain expected in August, soybeans are now attracting attention as the next major crop to under go deterioration. Soybeans pollinate later than corn, so if enough rains had come, it would have boosted the yield significantly. That hope is now fading, as dry weather continues on with little chance of relief.

November soybeans jumped 41.57 cents to close at $16.435 a bushel, a gain of 2.6 percent. Along with the drought, low global soybean inventories are supporting higher prices.

Corn, Soybeans Jump, Rains Too Late

Most experts who understand the pollination process of corn and soybeans say rains are too late for corn in poor condition, and for soybeans, it's marginal as to how much they will be helped by projected rain in the Midwest of the United States.

Consequently, the price of corn and soybeans reversed direction as the market consumed and understood that rains won't do anything to change corn, and it's not sure how much it'll help soybeans, which have a better change of improving because they pollinate later than corn does.

Once a crop is pollinated, as in the case of corn, nothing can be done to change the yields. All rain can do with corn once it reaches that stage is fill out the existing kernels more.

Corn and soybeans had dropped in price after forecasts for significant rains in the Midwest were recently made. But once the information was understood as to its effects on the crops, prices resumed their climb.

Corn rose another 1 percent on Wednesday, while soybeans got close to a 3 percent boost.

Wheat is being affected by corn and soybeans, but also by the increasing concerns over global supplies.

The projections of yields of corn per acre by the USDA are considered far too optimistic at this time by outside experts, who see corn at tops averaging 130 bushels an acre. It could fall as low as approximately 120 bushels an acre.

What still has to be taken into account is how much more damage will be done to corn that still has a chance to improve with the rains. Will there be enough rain to salvage the crop, or will it fall sporadically and quickly, not allowing for it to soak into the ground. That's the key to helping corn that still has possibilities for improvement. If it doesn't and the drought continues in those areas, it's unknown how badly the average yield per acre for corn will drop to.

But the U.S. drought isn't the only drought story affecting corn. There is also a drought in parts of Russia, Europe and Australia which could end up bringing down the global output for the year, which could continue to support higher corn prices.

The issue there is how many products using corn will experience reduced production because of the higher corn prices. That could pull they other way on corn prices, making it hard to project how high prices will go.

At this time, and with the current data, it appears about $9 a bushel is a good bet, although rapidly changing circumstances could alter that quickly.

Corn for December delivery were up 9.75 cents to finish at $7.88 a bushel and November soybeans rose 46 cents to $16.155 a bushel.

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.

European Corn Now Being Hit by Drought

While the focus on the hot temperatures and drought conditions in the U.S. have been garnering much of the news surrounding corn around the world, parts of southern Europe and stretching through into Ukraine are now starting to get hit by drought-like conditions as well, with temperatures rising to about 5 degrees Fahrenheit above normal, to 95 degrees Fahrenheit.

Accounting for approximately 16 percent of global exports, Europe is now adding to the concerns over how high the price of grains will go this year and how it will affect food prices.

Similar to corn in the U.S., the corn in the European region mentioned has now entered is pollination stage, which is the worst timing because it's that phase of the growth which determines the corn yield.

It is now clear that Europe will now have to import more corn and wheat than normal.

According to the USDA, EU corn yields are projected to drop about 12 percent over last year to about 6.73 tons a hectare, which is a little under two and a half acres.

Countries being hit the hardest in the EU are Italy, Hungary and Romania.

Since the middle of June, corn on the CBOT has soared by 57 percent to $7.9375 a bushel. Goldman Sachs (NYSE: GS) projects prices to climb as high as a record $9 a bushel within 3 months.

Wheat has been rising along with corn, with prices jumping to $9.4725 a bushel.

Soybeans, which are also in danger from under performance, has jumped to $16.4475 a bushel, a 36 percent increase. Along with corn, it has recently set all-time highs.

In early July the International Grains Council estimated the global corn crop to rise to 917 million tons this year, but the ongoing damage to crops around the world wasn't reflected in those numbers, which are sure to drop when the next report is released on July 26.

Potash (POT), Agrium (AGU), Mosaic (MOS) Shares Soaring on Rising Grain Prices

Shares of fertilizer companies like Potash (NYSE: POT), Agrium (NYSE:AGU) and Mosaic (NYSE: MOS) have been soaring since the early part of June, as a drought has been devastating the corn crop, and the resultant rising prices have pulled up price of soybeans and wheat with them.

The reason for the rise in share price for the fertilizer companies is that farmers will be able to pay more for inputs because of the boost in grain prices.

Yields for corn is already being downwardly adjusted in a significant manner, with about 1 percent of of the condition of the corn added daily as to being rated poor or very poor. It's dropping - as measured by percentages - a little over 1 percent a day, or about 8 percent a week nationally.

Corn prices have led the push in grain prices, soaring close to 35 percent over the last month, reaching $7.86 on a key futures contract.

Soybeans have been moving up in unison, climbing to an all-time high of $16.79 a bushel, even though they haven't had the damage the corn has endured, as they pollinate later and could be salvaged as far as to depth of losses if rains come soon enough.

The other side of this is those farmers who get a good crop could generate a lot of money this year, which is what the markets are looking at, and why the fertilizer companies have had their prices soar along with the crop prices.

The longer the drought lasts the better for the fertilizer companies, as every day that goes by some of the corn crop reaches a state of unrecoverability no matter if the rains come or not.

Shares of fertilizer companies like Potash (NYSE: POT), Agrium (NYSE:AGU) and Mosaic (NYSE: MOS) have been soaring since the early part of June, as a drought has been devastating the corn crop, and the resultant rising prices have pulled up price of soybeans and wheat with them.

The reason for the rise in share price for the fertilizer companies is that farmers will be able to pay more for inputs because of the boost in grain prices.

Yields for corn is already being downwardly adjusted in a significant manner, with about 1 percent of of the condition of the corn added daily as to being rated poor or very poor. It's dropping - as measured by percentages - a little over 1 percent a day, or about 8 percent a week nationally.

Corn prices have led the push in grain prices, soaring close to 35 percent over the last month, reaching $7.86 on a key futures contract.

Soybeans have been moving up in unison, climbing to an all-time high of $16.79 a bushel, even though they haven't had the damage the corn has endured, as they pollinate later and could be salvaged as far as to depth of losses if rains come soon enough.

The other side of this is those farmers who get a good crop could generate a lot of money this year, which is what the markets are looking at, and why the fertilizer companies have had their prices soar along with the crop prices.

The longer the drought lasts the better for the fertilizer companies, as every day that goes by some of the corn crop reaches a state of being unrecoverable no matter if the rains come or not.

One other factor is the health of corn in South America. The price dynamics of corn and fertilizers could change if there is a large crop there. Brazil has already been reputed to have sold up to 1 million tons of corn for delivery in October to December; although that has yet to be confirmed.

Deere & Co. (DE) Projects Lower Corn Prices

Agriculture equipment maker Deere & Co. (NYSE:DE) said on Wednesday they see corn prices dropping for 2012-2013, along with the price of soybeans, cotton and wheat.

Using a date for the starting the year of September 1, Deere said they see corn prices falling on average to $5.30 a bushel for 2012-2013, down from the average of $6.40 a bushel in 2011.

Soybeans are expected to drop significantly by Deere, with estimates of price per bushel falling from $13 a bushel in 2011 to $10.50 a bushel for 2012-2013. That's down from the November estimate of $11.25 a bushel.

For wheat, Deere sees prices dropping from $7.40 a bushel in 2011 to an average of $6.70 a bushel for 2012-2013. That's a little up from the November estimates of $6.60 a bushel for wheat.

Cotton is forecast to plummet from 88 cents a pound in 2011 to 75 cents a pound on average for 2012-2013.