$7 Corn Becomes Viable as Market Prices in Smaller Crop

Corn prices are experiencing their largest August rally since 2010, and analysts Dan Basse and Chip Nellinger believe $6 corn is increasingly likely this year. While there's always risk with funds holding a long position, another factor could push prices past $6: El Niño.

The market is currently pricing in a smaller crop than the USDA's official numbers suggest, according to Nellinger. He notes that if the USDA comes in at 177 bushels an acre or lower in their next report on September 11, the market could start factoring in further cuts and move closer to Pro Farmer's estimated yield of 173.2 bu. per acre.

Basse agrees with Nellinger that a smaller crop and tighter global supplies are driving the rally, but believes there's a 50/50 chance prices could reach $7 if there are any hiccups in Latin America due to El Niño. He points to record-warm conditions in the equatorial Pacific tied to a potential super El Niño, which creates uncertainty for South American weather.

Nellinger also cautions producers to prepare for turbulence along the way this fall, as daily ranges are expanding and the market is already leaning towards a smaller crop. He notes that fund positioning has accelerated the pace of these swings dramatically and predicts further price volatility.