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1988 all over again?

Jeff Caldwell 07/11/2012 @ 7:56am Multimedia Editor for Agriculture.com and Successful Farming magazine.

Is it 1988 all over again? That's about the tone from Wednesday's USDA reports that cut projected corn yield by a record amount to 146 bushels/acre, but also showed demand is slowing.

Now, it's almost a case of an ebbing tide lowering all boats; yields, old-crop ending stocks and projected new-crop stocks were all lowered in Wednesday's report. But, the numbers are still bullish, as some traders and analysts wonder whether or not the demand trimming will be able to keep up with a yield number that's only moving in one direction.

"Certainly, the government acted very similar to what they did in 1988, the last big drought. They made some dramatic cuts and sent the signal that we're going to ration," says Don Roose, trader and analyst with U.S. Commodities in West Des Moines, Iowa. "The government took exports and feed use down. We are moving up in price and the supply continues to shrink. Is demand shrinking enough?"

Moving forward, Roose says it will be critical for the marketplace to "do the job" on rationing. If that's done, a realistic range for cash corn prices could be $5.40 to $6.40/bushel, rather than the $7 to $9/bushel numbers some pegged before Wednesday's reports were released.

And, one thing's certain: "Now, we're going to watch the weather," Roose says.