After the release of the USDA Crop report this week, traders will be watching the weather closely as the corn growing season progresses. Growing conditions in Iowa, Illinois, Nebraska and other Corn Belt states are crucial to make this year's crop come off as promised.

"Now, all the market focus will shift to weather, and U.S. weather alone," said Jason Ward, an analyst with Northstar Commodity in Minneapolis.

The short-term forecast is looking favorable for the Corn Belt. “In the Corn Belt, cooler weather is pushing into eastern portions of the region behind a slow-moving cold front,” according to a USDA Agricultural Weather Services bulletin issued Wednesday. “Showers are expanding across the western Corn Belt, benefiting corn and soybean development.”

Showers and thunderstorms are expected to push up from the central Plains into the northern Plains and western Corn Belt this week. Dry but cooler weather is expected through the eastern Corn Belt, although heat is expected to return from the west by week’s end.

Still, weather is not the only factor influencing corn prices. Demand factors will also play an increasing role. “Longer term, demand drivers that will come more into focus will be ethanol and corn exports to Asia,” according to the CME Daily Livestock Report. “China has emerged as a significant buyer of U.S. corn and it plans to boost its purchases this fall.”

Corn prices rose Wednesday about 30 cents to $7.26 a bushel because the projected supply increase wasn't as big as analysts had anticipated. “Trade was expecting the USDA balance table to show corn carryout for 2011/2012 at 1.013 billion bushels,” according to the CME report.

Planted corn acres are the second largest this year since World War II, however lingering concerns also remain about corn demand from the ethanol industry. “USDA increased expected ethanol use for 2011-2012 by 100 million bushels despite ongoing speculation that the U.S. Congress is about to eliminate ethanol subsidies,” according to the CME report.

This year's corn harvest is expected to be 92.3 million acres, about 9 percent larger than the average annual corn crop over the past decade. The only crop bigger in the past 67 years was planted in 2007. Harvest is expected to total 13.47 billion bushels.

Source: CME Daily Livestock Report, Associated Press, USDA