How could the price of new-crop corn futures rebound from a low of $3.50 at the end of June to $4.40 at the end of August, and spike to $5.80/bu. by mid-October? Surely there must have been a terrible crop disaster!

U.S. corn yields are expected to be about 4% below trend-line expectations. Far from a disaster, 2010 will go down in history as a modestly disappointing year for corn yields. This was not a short crop. Among analysts, the unofficial definition of a short crop is one with grain yields averaging 10% or less below trend-line yields (unofficial because there is no official definition of a trend-line yield). Think of 1983, 1988, 1993 or 1995 – it’s been a long time since we last endured a true short crop in corn.

What does it say about the current balance of supply and demand when a corn crop with the third highest yield ever recorded would set-off a 65% increase in corn prices? We are at a tipping point.

Ending stocks are estimated by the USDA each month and measure just what the term implies – the amount of grain left over at the end of a crop year. Ending stocks for 2010 are projected at 900 million bushels. That sounds like a big pile of corn, but corn demand is also great. The industry uses more than 250 million bushels each week. U.S. ending stocks of corn, relative to use, are projected to be less than 7% – only 1995-1996 was tighter.

A modestly disappointing crop has us at the tipping point. It all makes me wonder where prices would be if we had a real short crop.