In addition to the high temperatures, corn yield potential may be threatened by the expanding area of dryness over the last few weeks. For the first half of July, precipitation was well below average in large portions of Illinois and Indiana.

"Portions of southeastern Iowa, northwest Ohio, and eastern Michigan have also been relatively dry. Precipitation over the past 30 days was below normal in large portions of Iowa, Illinois, Indiana, Ohio, Michigan, Pennsylvania and southern Wisconsin," he added.

Good said that less than favorable July weather in many areas has reduced corn yield potential in those areas. He added that the overall impact on the likely U.S. average corn yield will be influenced by weather conditions in the last week of July and in August, and that some indication of the impact will be revealed in the weekly crop condition ratings.

"Overall ratings for the week ended July 17 may not decline substantially, but declines could be reported for the week ending July 24 as a result of high temperatures and the lack of widespread precipitation," he said.

The importance of the 2011 U.S. corn yield is underscored by the USDA's projection of record consumption of U.S. corn during the 2011-12 marketing year. The most recent projection, released on July 12, forecasts consumption at 13.5 billion bushels, 195 million bushels above expected consumption during the current marketing year.

Stocks at the end of the 2011-12 marketing year are projected at 870 million bushels, or 6.4 percent of projected use. Based on the forecast of 84.9 million acres to be harvested, a yield below 156.5 bushels would force a reduction in the projected level of consumption.

A continuation of relatively high livestock and ethanol prices, along with growing Chinese demand, suggests that high corn prices would be required to curtail consumption.

"For now, the corn market is reflecting modest concerns about the size of the 2011 crop," he said.

"December 2011 futures recovered by more than $1 from the low on July 1, but are currently about 50 cents below the high reached on June 9. Prices will continue to reflect weather conditions, weather forecasts, and crop condition ratings."

As indicated last week, the nature of the 2011 planting and growing season creates a large amount of uncertainty about the size of the 2011 corn crop. Small inventories and strong demand increase the importance of crop size.

"As always, the USDA's August production forecast is highly anticipated because it will establish a benchmark for forming production expectations. That report may have added impact this year due to the possibility of adjustments to the harvested acreage forecast," he said.

It almost goes without saying that corn prices will continue to trade in a wide range, Good added.

"All of the uncertainty makes it difficult to judge the overall price direction, but it appears there is more production risk than is currently reflected by the corn market.”