Fundamentally Speaking

Favorable weather during July led crop prices and most feed ingredient values lower as last month wheat prices were off 30 cents, corn down 30, soybeans declining by $1.80 per bushel, soymeal down $63.00, and soyoil off 205 points.

The 30 cent tumble in December corn from $3.73 to $3.43 represents an 8.0% decline in values during July, the most critical month for corn crop development as that is when the plant goes through its critical yield sensitive period.

This graphic tracks the price action of December corn during the month of July in percentage terms vs. the percent that final U.S. corn yields deviated from their 25 year trend.

Looking at the chart, it appears that new crop corn prices decline in July when weather is deemed favorable resulting in final corn yields that are above trend, while adverse growing conditions in July often can lead to price rallies.

The July 2015 price action was down 11.2% when final yields were 2.0% above trend while in 2014 December corn fell by 13.4%, a year in which the final corn yield was 5.8% above trend at a new record of 171.0 bushels per acre (bpa).

2013 also saw negative price action in July when final yields were 1.0% below trend but the prior three years saw corn prices in July advance based on yields below trend.

2012 is the year that stands out as price gains that month were the largest since 1980 with the December 2012 contract up 23.8% after the horrific drought that year resulted in the 2012 U.S. corn yield 22.0% below trend.

In other bad years, 1983 saw prices up 18.5% with yields off 21.0%, values up 0.8% with final yields down 17.3% and in 1988 corn prices off 20.2% even though final yields were 24.6% below trend, an even worse year than 2012.

We should note that the drop in yields in 1993 was linked to flooding rains that year but the market only belatedly realized that excess moisture can also be devastating to crops, while in 1988 the drought started so early that prices ran sharply higher in May and June and then fell in July as the market realized the depressing impact high corn prices would have on demand.

(KA)

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