Report highlights there's very little room for any crop problems. The USDA report this week jarred the corn market back into its bullish state after running to new lows earlier this week. Corn ran into difficulty as many people started to assume that corn had good crop conditions, and was developing fine with a likely increase in planted acres due to the early planting season in 2010. However, corn surprised almost all traders with its bullish report Wednesday, with both smaller stocks (-285 mb from expectations) and smaller acreage (-1.4 million acres from expectations) than expected that will push corn back into a very sensitive situation in 2010. Cutting ending stocks 500 mb in 2010 would mean a carryout of barely 1 billion bushels (wheat will have as much carryout!). That leaves very little room for any crop problems. Speaking of crop problems, the US corn crop has been going backwards in the recent few weeks, with the Pro Ag yield model declining significantly the past two weeks due to some inclement weather. Although there is some great looking corn in places (MN is a bright spot), there is also some ragged-looking corn in some areas and that is starting to show in crop condition ratings across the country. These problems should start to become a concern to the market, especially now that we know planted acreage was not there, and that our stocks are quickly shrinking across the country. It is somewhat surprising that corn finds itself in this situation where stocks are tight and we are on pins and needles to see if this year's crop will have a large enough yield to keep stocks in good condition. First, stocks are surprisingly small compared to what was expected, but perhaps the light test weight of last year's crop is starting to show up in larger feed use of corn. Finally, we are seeing the bullish implications of what might have been a smaller US crop last year than expected. But, also we are feeling the pinch of the large demand for corn that this country is experiencing the last few years. We are using a lot of corn for ethanol use (4.7 billion bushels), we now have export demand from China, and we simply use a lot of corn in this country for various uses. Due to the strong demand, we don't have any room this year for any smaller crop than the current 163.5 bu/acre crop USDA is projecting. With USDA at 163.5 bu/acre in its projection, Pro Ag is finding a quickly shrinking corn crop in recent weeks. Two weeks ago our yield model projection was up to 164.5 bu/acre, but the past 2 weeks have shown a significant drop in corn yield potential of almost 4 bu/acre! That means we are now projecting a crop size of only 160.7 bu/acre, now almost 3 bu/acre smaller than USDA projection. That represents another 320 mb lost production in just the past 2 weeks (240 mb below USDA's yield projection), and that should start to get the attention of traders in the coming weeks - especially now that USDA has dropped the bombshell of a report on June 30 showing smaller stocks and acreage. Overall, the corn market is just starting to get bullish again. This could get real interesting if we find out that the corn crop continues to decline in July. Already we are seeing a warmer and drier weather pattern emerging in the US that will start to put some more stress on crops (especially in southern areas). If we continue to stress the corn crop growing in the fields, look out for a potential sharp rally in the corn market that could catch many traders by surprise. As corn is starting to show us, it is surprising how quickly what looks like a bearish outlook can turn bullish in a hurry. We might find that wheat might turn bullish simply because we might be forced to feed a lot more wheat than we expected due to the tight supply of corn. If today's reaction to the government report is any indication, wheat might be a bull market simply because it can be a substitute for corn in feed rations (wheat stocks were reported even more bearish in the June 30 report, but wheat prices were up 10-20c anyway due to the strength in corn). Substituting 500 mb of wheat for corn in feed bunks can quickly turn what looks like a very bearish outlook into one that is a little more friendly. And to think it would only take another 3-4 weeks of poor corn growing weather to force this type of substitution should put wheat traders on alert, too, for a potential whirlwind change in the direction of prices! The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable. The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.