March corn was trading 6 1/4 cents lower late in the overnight session. Outside market forces were negative with a bounce in the US dollar and weakness in energy and equity markets. After an 88-cent rally (15%) into early January, the market now faces a critical weather period for the mid-January to mid-February time frame and a set of key USDA reports to be released on January 12th. These two events will likely dictate price direction for the second half of January. Argentina is currently trading a very dry forecast for the first half of January. The next rain event for Argentina looks to come in for January 10th and 11th, and traders have increased the coverage for this event. However, there is still no talk of a shift to a wetter weather pattern, and a return to a hot and dry pattern for the second half of the month could spark increased concerns from end users. Losses from the drought so far are thought to be near 9-11 million tonnes. Traders see nearly half of the crop pollinating at this time and stress could cause irreversible reductions in yield. Permanent yield damage looks more and more likely for Argentina's producing regions for this week and weekend. The loss of 9-11 million tonnes out of world production should drive ending stocks under 120 million tonnes. This would push the stocks/usage ratio to a historic low. While these are big losses, traders are also well aware that the US could see a 2-3 million acre jump in plantings in 2012. That coupled with a trendline yield of 164 bushels per acre (up from 146.7 in 2011) could send production sharply higher, up about 1.94 billion bushels or up 49 million tonnes from 2011. However, reports this week suggest that producers may see tightness in seed availability this year. On top of the weather, traders expect a slight reduction in yield for the final 2011 crop production report on January 12th. They also suspect that higher feed usage this past autumn will result in lower than expected December 1st (quarterly) stock levels, which will also be released on January 12th. These two factors alone could drive the January 12th ending stocks estimate for the 2011/12 season down towards 700 million bushels from the 848 million that was forecasted in the December update. In addition, if the USDA lowers South American production because of the recent dry conditions there, US exports could be adjusted higher by 50-100 million bushels. This could drive the ending stocks down even further. With the possibility of both world and US ending stocks showing historic tightness for the 2011/12 season, the market has significant upside potential if the weather remains an issue for the second half of January. March corn closed unchanged on the session yesterday after choppy and two-sided trade. Fund re-balancing, increased producer selling and some increased Argentina rain coverage for next week were seen as negative forces.