Fundamentally Speaking

Joel Karlin
DTN Contributing Analyst

With the corn crop mostly planted, it will now enter its vegetative stage during the month of June.

While weather conditions are obviously important to development during this time, temperatures and precipitation are seen even more critical the following month as corn typically goes through its critical reproductive phase during July.

Hence, it is thought that corn price movement is rather subdued during the period between Memorial Day and the start of the 4th of July weekend.

On average this is true for the mean price movement for September corn futures between Memorial Day and the 4th of July weekend is down 2.6% with movements of up 10.7% to down 15.9% seen two-thirds of the time.

For this year's September contract valued at $4.75 ½ per bushel, the average move would result in a price of $4.63 with a value between $4.00 and $5.27 expected 67% of the time.

Larger price moves have been seen in the past with the biggest gains witnessed in 2012 when prices surged by 34.5% between these two holidays to a 22.4% drop in 2009.

We assumed that how crop conditions change from the beginning of June to the first week in July would have some influence on prices so this graphic tracks both the percent price change but also the percent change in crop conditions during this period.

For crop conditions, we use our usual ratings system where we weight the crop based on the percent in each category and assign that category a factor of 2 for VP, 4 for P, 6 for F, 8 for G, and 10 for EX and then sum the results.

No surprise that the largest price gain this period, the 34.5% increase posted in 2012 is associated with the largest drop in crop conditions during that time period of 20.2%.

The largest increase in crop conditions of 9.0% in 1994 resulted in 15.8% decline in prices, the third largest price drop in this study exceeded only by the 17.2% drop in 2000 and the largest price tumble of 22.4% in 2009.

Interestingly, crop conditions posted only modest gains during those years but crop ratings around July 4th for both seasons were historically high.

A simple correlation coefficient is -0.54 showing a decent inverse correlation between changes in corn crop conditions between Memorial Day and the 4th of July and the percent change in September corn futures during the same time period.

(KA)