The importance of the 2011 U.S. corn yield is underscored by the USDA's projection of record consumption of U.S. corn during the 2011-2012 marketing year. The most recent projection, released on July 12, forecasts consumption at 13.5 billion bushels, 195 million bushels above expected consumption during the current marketing year, he says.

Stocks at the end of the 2011-2012 marketing year are projected at 870 million bushels, or 6.4% of projected use. Based on the forecast of 84.9 million acres to be harvested, a yield below 156.5 bu. would force a reduction in the projected level of consumption. A continuation of relatively high livestock and ethanol prices, along with growing Chinese demand, suggests that high corn prices would be required to curtail consumption, says Good.

"For now, the corn market is reflecting modest concerns about the size of the 2011 crop," he says. "December 2011 futures recovered by more than $1 from the low on July 1 but are currently about 50¢ below the high reached on June 9. Prices will continue to reflect weather conditions, weather forecasts and crop condition ratings."

As indicated last week, the nature of the 2011 planting and growing season creates a large amount of uncertainty about the size of the 2011 corn crop. Small inventories and strong demand increase the importance of crop size, he says.

"As always, the USDA's August production forecast is highly anticipated because it will establish a benchmark for forming production expectations. That report may have added impact this year due to the possibility of adjustments to the harvested acreage forecast," he said.

It almost goes without saying that corn prices will continue to trade in a wide range, Good says.

"All of the uncertainty makes it difficult to judge the overall price direction, but it appears there is more production risk than is currently reflected by the corn market," he adds.