July 13, 2012

US corn yield forecast down, price forecast up

Due to drought in the US Midwest, US corn yield forecast for the second time in less than two weeks has been slashed by Goldman Sachs to 143.5 bushels per acre from 153.5 bushels per acre and raised its price forecasts for corn, soy and wheat.

The worst Midwest drought in a quarter century is doing more damage to US crops than previously expected with the USDA slashing its estimate for what was supposed to be a record harvest.

"Weather in the US Midwest ended the month of June hotter and drier than expected, with current forecasts for July also pointing to above-average temperatures and more importantly, below-average precipitation," Goldman said in a note to clients.

Goldman's updated yield forecast is below the USDA's forecast of 146 bushels an acre. The USDA slashed its forecast on Wednesday (July 11), citing the Midwest drought.

"Our updated yield forecast is 16.5 bushels an acre below what we believe the US corn yield would have been under average weather conditions this summer," the bank said.

"On this metric, it would be the second largest yield loss since 1950 if we exclude 1983 and 1993, years with major floods."

Goldman also forecast a deficit in the US corn balance in 2012-13 for the third consecutive year.

Goldman raised its three-, six- and 12-month price forecasts for Chicago Board of Trade corn futures to US$6.90 per bushel, from US$6.30 previously.

For CBOT wheat, Goldman raised its price forecasts for the same three time periods to US$7.70 a bushel, from US$7.15.

For CBOT soy, the investment bank raised its three- and six-month price forecasts to US$16.25 per bushel from US$15.50.