What is pushing and pulling on the corn market? There is good weather. There is large acreage. There is good demand and use. There are also various economic factors. All of those combine to create dynamics that have the potential to move the price significantly, but are countering each other. It is like a battle of titans, and any one of them could win, but for the most part they lumber at each other until they tire. And the first one down may let the others steamroll over him. Melvin Brees calls it an “interesting” exercise.

USDA’s reports last week set the stage for the next several weeks of activity in the corn market, since both old crop and new crop carryover were estimated at lesser amounts than anticipated by the grain trade. The corn carryout tightened by 245 million bushels to just under 1.6 billion, and not far from the 10 year average of ending stocks. That is in line with the global trend, and the corn supply is expected to slightly decrease, says University of Missouri economist Melvin Brees in his monthly newsletter.  Brees says with the carryover shrinking slightly, the market should be watching several factors.

1. The weather is an uncertainty. Yes, we have planted the crop in a timely fashion and have provided plenty of moisture. However, some areas are flooded and farmers report more rain than they want right now, thank you. Crop condition reports have been about as high as could be expected, but ponded fields have caused some deterioration in crop conditions in IL, IA, OH, and MO. While many fields could probably do fine with the moisture that has fallen so far, that might become a reality.

Meteorologists are forecasting a La Nina, which would bring hot and dry weather to the Cornbelt. If the rain shuts off, how would your corn crop fare?

2. Acreage is abundant. While we won’t have a final USDA estimate until the Planted Acreage report is released on June 30, most of the estimates are for an 88 million acre crop that is in quite good condition. Brees says some analysts are expecting more than that because good planting weather usually means corn was planted in more fields than predicted. He says the current acreage expectation would be bullish for the market, but any more might become bearish. Mark your calendar for June 30.

3. USDA has been raising consumption estimates says Brees, most recently for corn to be refined into ethanol. The increased ethanol production, along with higher export predictions for the new crop, helped reduce the carryout in August 2011. He says usage targets are high, and notes that Chinese imports of U.S. corn could be a wildcard. While China has been having drought problems, its demand will have to be measured against increasing demand around the world for global corn stocks.

4. A wide range of economic factors have been playing into the commodity market for over two years, complicating the traditional supply and demand formulas. Stronger dollar values have frequently resulted in weaker export markets and lessen the demand for corn. Corn’s response to ethanol demand is really a response to oil prices. When the latter declined in May, so did corn. Because of the strong influence those economic factors have over the market, Brees says any of them represent potential downside risk and upside opportunities.

5. Throughout the spring corn prices have trended downward, probably because of the prospects for a large crop. But Brees says the lower carryout may have halted the trend. He notes that corn prices have recovered significantly from the low earlier this month but have remained in a long term trading range. Brees says they will have to close above $4 before any upward trend can be confirmed.

The Missouri economist believes it will take some supply concerns this summer to spark much of a price rally, which would offer higher than expected pricing opportunities. But he says those turn downward as quick as they move upward and it is hard to take advantage of the higher prices. He suggests the use of out of the money call options to support a marketing plan, since he is not counting on any extended market rally. He recommends selling corn in the upper range of the USDA’s price range, which is $3.30 to $3.90 for the new crop.

Corn market dynamics are keeping each other in check, without any clear price direction as we head into pollination periods for many corn fields. Marketing plans may be well served with an out of the money call option strategy, with corn being priced in the top of the USDA price range that approaches $3.90.