July 17, 2012

 

US corn crop weakens as drought heightens

 

 

As conditions tumbled the most in nine years for a second straight week in the world's top exporter of the grain, the US corn crop last week took another heavy blow from the worst drought in 24 years, US government data showed on Monday (July 16).

 

There were also signs that the drought centred in the Midwest was expanding north and west, putting more crops at risk including states like Nebraska where large tracts of cropland are irrigated by groundwater and rivers.

 

The amount of the corn crop rated by the USDA to be in the good-to-excellent category fell nine percentage points to 31%, well exceeding the five-point drop expected by traders polled by Reuters on Monday (July 16) morning.

 

The drought also pummelled the soy crop, which was rated 34% good-to-excellent, down six percentage points from the previous week and one point below estimates for 35%.

 

After one of the mildest winters on record sparked a record pace in planting and promised a bumper harvest, a sudden turn to dry weather in the Midwest has decimated the crops.

 

New-crop December corn has soared 54% since mid-June, reaching a contract high of US$7.78 on Monday (July 16).

 

The surge in prices would cut into margins for meat companies like Smithfield Foods and Tyson Foods and ethanol producers while raising the prospects for higher beef and pork prices in the US next year as ranchers cull their herds because of high feed costs.

 

"The drought continues to take a significant bite out of yield potential," said Dan Basse, president and analyst for AgResource Co. "I suspect we're getting very close to something in the 132 to 133 yield range and it's still falling."

 

The USDA cut its corn yield estimate by an unprecedented 20 bushels in a report last week to 146 bushels per acre, igniting concerns that this year's crop could mirror production in 1988 when a similar drought decimated the crops.

 

"As the crop gets worse, there's an historical precedent for increased abandonment. If you talk to farmers, they'd tell you that there's a fair amount of fields being zeroed out by crop adjusters," Basse said, referring to farmers forgoing their crops to collect crop insurance.

 

The top two corn producing states in the country, Iowa and Illinois, showed huge declines in crop prospects. Corn in Iowa fell from 46% good-to-excellent last week to only 36% this week. In Illinois, the crop plunged to 11% from 19% good-to-excellent.

 

The crop in Missouri, the worst hit by the drought, fell to 7% from 12 while Kentucky's crop improved slightly to 6% from five. At the beginning of the crop season the USDA rated 77% of the corn crop and 56% of the soy crop in the good-to-excellent category.

 

The 2012 drought is considered the worst since 1988, a year that saw sharp reductions in corn and soy production as the dry conditions intensified.

 

For the comparable week in 1988, 18% of the corn crop and 20% of the soy crop was rated good to excellent, according to USDA/NASS data. Crop conditions were rated lower at the beginning of 1988 than this year.

 

Extreme dryness and heat hurt crops at first in the eastern and southern Midwest, but now the drought is expanding into western and north western states such as Iowa, Nebraska, Minnesota and the Dakotas, all major producers of corn and soy.

 

"Crops in the east already have deteriorated rapidly and now heat and dryness is stressing crops in the west and northwest," said Roy Huckabay, analyst for The Linn Group.

 

The latest weather forecasts call for the drought afflicting the US Midwest to worsen, taking a bigger toll on the country's corn and soy crops, meteorologists said on Monday (July 16).