December corn was trading 12 cents lower near 7:30 am CST. The new crop contract traded a narrow range overnight but lost steam once European markets opened for business. Lack of follow through support has forced profit taking and spillover pressure was seen from the sharply lower Chicago wheat market. The December contract made a new high for the move yesterday but failed to move above that level overnight. Outside markets are weaker this morning after Chinese and Euro zone PMI data disappointed investors. Europe's manufacturing sector contracted for the 11th straight month. The US Dollar is trading slightly lower, crude oil is higher, and US stocks are set to open up marginally higher this morning. The corn market has chopped around the 800 level since the breakout above it on Sunday night. Weather forecasts continue to look poor around the US Midwest but follow through buying and a fresh set of bullish news might be needed to extend gains. Corn bulls have likely shifted their focus towards the USDA report next week and are monitoring early yield reports in the southern Delta. Balance sheet adjustments continue to be made as market participants shuffle demand expectations around. Bears continue to point towards the prospects of a lower ethanol mandate. Bulls are suggesting that Ethanol Production is already adjusting lower due to narrow margins. This week's Ethanol Production report will be released today. The trade expects another decline in production and corn use week over week. The Midwest weather forecast remains unfavorable for fall crops, with 90-100 degree temperatures expected for growing areas in the Southwestern Corn Belt this week and part of next week. Scattered showers are also expected in the Midwest to finish out the week but soil conditions are so poor that the light rainfall will provide limited relief. The corn crop pollination will mostly be complete by the end of this week so any further rainfall will not help improve yield much. Cooler temperatures may be able to stabilize yield loss for some areas. The US Midwest is not the only area in the world that could see substantial production losses for corn. Ukraine continues to deal with it's own weather problems and the recent drought has not only effected wheat production, but is likely to downgrade corn yields as well. Searing hot temperatures in early August could mean a corn harvest near 20 million tonnes. This would be 4 million tonnes below the current USDA estimate and tighten the global corn balance sheet further. France also projected lower corn production after the French Farm Ministry announced that corn production would be down 2% from 2011. This was their first estimate for the new marketing year. Argentina announced yesterday that they would enact a new export policy that grants farmers permission to sell their whole corn harvest as they set single year export quotas, instead of the incremental quota system currently in place. The government hopes that the new policy will increase sowings for corn and wheat in the future. Current market conditions suggest a corn yield near 129 bushels/acre with some estimates coming in as low as 120-122 bushels/acre. If a 129 bushel/acre yield is attained, this would imply a stocks-to-usage ratio of negative 3%. Another billion bushels of corn demand will need to be rationed just to move the 2012/13 ending stocks near 600 million bushels.
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