December corn traded slightly higher as of 7:30 CST following lower than expected good/excellent crop conditions ratings yesterday afternoon. Corn bounced higher on the open, posting a new high for the move, before sellers entered the market and drove prices near the low end of the range. Dalian corn traded.42% lower overnight and outside markets are providing a slightly positive tilt with stocks set to open higher and the US Dollar trading lower. The corn market surged overnight following worse than expected crop condition ratings yesterday afternoon. Corn extended it's remarkable rally of over 40% in the last 4 weeks before profit taking took over on thoughts that the market was overbought. Corn open interest grew by 19,962 contracts in yesterday's trade, signaling new longs entering the market. Current drought conditions, which are now being described as worse than 1956 by NOAA, has plagued Midwest crops for nearly 2 months. The updated Crop Conditions reports for the week ending July 15th were worse than trade expectations. The Corn Conditions report showed 31% was rated good/excellent compared to 40% last week and 66% last year. The 20 year average for this time of year is 65%. The lowest on record for this time of year was 17% in 1988. Corn in Indiana and Illinois continue to wither under the extreme heat and dry conditions but the focus of the market has now shifted towards major producing states in the west like Nebraska and Iowa. Over 70% of the corn in each of these states is now silking but 85-95 degree temperatures and terrible topsoil conditions have forced crop conditions to plummet in the last week. This week's forecast calls for 95-105 degree temperatures which will continue to decimate yield potential in the western Corn Belt and likely move the national corn yield expectations below 140 bushels/acre. Using an average corn yield of 139 bushels/acre and adjusting harvested acres down to 87.9 million, would imply a national stocks to usage ratio of just 2.9%, an all-time low. Using the same data, except dropping the yield down to 134 bushels/acre, would imply a negative carryout for 2012/13 and drop the stocks to usage ratio to -0.6%. Both of these scenarios would result in record prices, extreme volatility, and possibly a reduction of another billion bushels of demand. There doesn't seem to be an immediate end in sight to the current weather pattern as temperatures look to surge into the 100's this week and the most recent 6-15 day forecast calls for below normal rainfall for the western and central Midwest. Topsoil conditions across the Midwest are some of the worst ever recorded so even a.25 to a.50 of rain may not provide any significant help to corn at this point in time. Demand remains sluggish, providing further evidence that this bull market is being driven by a fear of supply. The Argentinean government approved another 15 million tonnes of corn exports for 2012/13 and US exports will drastically slow over the coming months. The market will need to come to the realization that not only will there be more demand destruction for the coming crop year, but the extent of the damage will likely be felt over the next couple years.