December corn surged to new highs overnight. The new crop contract is trading 22 cents higher this morning and traded as high as 817 1/4. The September contract is losing to the December contract as the inverse narrows as harvest has begun in the US Southern Delta region. Dalian corn traded marginally higher overnight. Outside markets are mixed with the US Dollar trading slightly higher and stocks index futures trading marginally lower. The Euro slipped overnight as traders take profits after last week's gains. This added support the US Dollar overnight as trader await a much anticipated European Central Bank meeting this Thursday. Investors continue to look for evidence of World Central Bank plans to ease monetary policy going forward. Crude oil is supportive as tensions rise in the Middle East. The corn market surged to new highs overnight after weekend weather disappointed and the outlook for further decreases to US corn yields looks likely. Weekend showers moved through nearly a 1/3rd of the US Midwest, dropping.50-1.50 inches of rainfall. The brief pullback in temperatures and restricted rainfall is expected to provide relief to soybeans but a return to 90-100 degree temperatures for half the Midwest this week will continue to stress the drier areas. Temperatures will remain warmer and drier the next 11-15 days, with the hottest temperatures felt in Nebraska, Kansas, Missouri, southern Illinois, and southwestern Indiana. The US corn crop is now too far along to benefit from the rainfall but a break in temperatures may at least stabilize yield loss. The blistering temperatures are expected to return to the Western Corn Belt this week which will mean a deterioration of yield potential for major growing states like Iowa and Nebraska. The bear camp still points to the demand destruction already occurring at current price levels but much more may be needed. The market is likely trading yield near 130 bushels/acre. If attained, this would imply a carryout near negative 300 million bushels. The corn balance sheet will need to cut nearly 1 billion bushels of demand just to maintain minimum pipeline levels. Crop tours last week offered support to corn as they reported lower than average yields. One closely followed crop scout pegged the Iowa yield at 117 bushels/acre, while another tour pegged the national average yield at 118. Coming into July, the market had hoped that conditions and yields in Iowa and Nebraska would largely offset losses in Illinois and Indiana. Reports of dead fields and earless stalks are now raising fears that the corn crop in Iowa is drastically worse than previously thought. While demand has slumped in the last month, it will take more than a handful of weaker than normal ethanol production and export sales reports to ration an 11-11.5 billion bushels corn crop. The Ethanol Mandate is beginning to pick up more headlines and it is still possible that a cut to the mandate may be made. A cut to the mandate may in fact ration some of the demand but that alone won't solve the problems we may be facing in corn supply for the 2012/13 marketing year. The Commitments of Traders Futures and Options report as of July 24th for corn showed Non-commercial traders were net long 306,406 contracts, an increase of 49,147 contracts. Non-commercial and Non-reportable combined traders held a net long position of 229,907 contracts. This represents an increase of 24,978 contracts in the net long position held by these traders. The record net long for these traders still stands at 366,547 contracts, further signaling that funds still have room to add to positions if outside markets stabilize. Trend-following funds (Non-commercial net of Index Funds) hold a net long position of 210,401 contracts. This is an increase of 53,791 contracts.
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