U.S. corn futures are expected to start sharply higher Tuesday as a larger-than-expected cut to crop condition ratings renews fears about output.
Traders predict corn for December delivery, the most actively traded contract, will open 18 cents to 20 cents a bushel higher at the Chicago Board of Trade. In overnight electronic trading, the contract climbed 20 1/4 cents, or 3%, to $6.97 1/4 a bushel.
Driving prices higher is a three percentage point drop in the government's weekly good-to-excellent rating for the nation's corn crop. The U.S. Department of Agriculture, in a report issued Monday, said 66% of the crop was in good-to-excellent condition, down from 72% a year earlier. The decline from the previous week reflected damage from extreme heat, surprising analysts who predicted the government would lower the rating by two percentage points at most. Heat has plagued growing areas in the southern U.S. and started threatening crops in the Midwest's Corn Belt during the weekend.
"We are beginning to see that all of the weather problems in southern regions and now in the central Corn Belt are beginning to take their toll on the overall corn crop," said Tomm Pfitzenmaier, analyst for Summit Commodity Brokerage in Iowa.
Traders are paying close attention to the weather because farmers need favorable conditions to grow a big crop to replenish low inventories. Corn prices have pulled back 10% since reaching an all-time high in early June on supply concerns. Yet, users of the grain remain nervous about threats to the crop.
In Illinois, the good-to-excellent rating dropped six percentage points from last week to 61%, a particularly large decline. The USDA said in a report that "hot and dry crops were beginning to show stress." Illinois is typically the country's second largest producer of corn behind Iowa. Crops will continue to suffer unless rains and cooler temperatures bring some relief.
"The market is likely going to have to acknowledge that the country's no. 2 corn producer is likely losing bushels by the day if rains disappoint this week," said Mike Zuzolo, president of Global Commodity Analytics & Consulting, a brokerage firm in Indiana.
Temperatures will moderate in the Midwest early next week but climb again near the end of the month, according to Freese-Notis Weather, a private weather firm. Condition ratings for the corn crop will likely decline further in next Monday's crop report "no matter how much rain falls later this week, given the type of heat that we are seeing this week," the firm warned.