October 11, 2010

US corn predicted to yield the smallest in 14 years

The US corn crop is likely to be far smaller than expected as late summer heat reduced yields across the Corn Belt, and the corn stockpile will shrink to less than a four-week supply by next fall, a government report said Friday (Oct 8).

The USDA shocked market watchers, cutting its corn crop estimate 4% and soy 2% based on conditions October 1. Its forecast of crop size and season-ending stocks sent grain prices soaring in Chicago.

"Smaller crops get smaller in both corn and soybeans. Soybeans have lost their cushion. South America is going to be most important," said Don Roose, president of US Commodities in West Des Moines, Iowa.

With the harvest in full swing, USDA reported a downturn in corn yields from Ohio to Nebraska. It pegged the average yield at 155.8 bushels per acre, down 4% from its prior estimate. USDA cut yields by 14 bushels an acre in Illinois, the second major corn state; by 10 bushels an acre in Iowa, the major corn state; and by nine bushels in Nebraska, the third corn-producing state.

Hot weather in August prevented corn and soy from reaching peak yields, traders said. Mid-September rains slowed the harvest in the Upper Midwest.

On the CBOT, prices of corn, wheat and soy all rose by the maximum amount allowed in a day. Livestock and ethanol prices also rose, as did shares of fertiliser companies.

USDA lowered its estimate of yields by 4% and pegged the corn crop at 12.664 billion bushels. With high demand, the corn surplus will shrink to 902 million bushels by the end of this marketing year, the smallest since 883 million bushels in 1996/97. The stocks-to-use ratio would be a tight 6.7%.

Traders had expected a corn estimate of 12.96 billion bushels and ending stocks of 1.172 billion bushels. For soy, they expected a crop of 3.475 billion bushels and end stocks of 331 million bushels instead of USDA's estimate of a 3.408 billion-bushel crop and 265 million bushel carry-out.

USDA's estimate of wheat end stocks, 853 million bushels, was 2% lower than traders expected. The average US soy yield was estimated at a record 44.4 bushels an acre, although down 0.3 bushels from a month ago.

Private consultant John Schnittker said USDA's steep reduction in corn yields "is almost unprecedented" and added that the stocks to use ratio "is pretty low, putting real pressure on acreage and yield next year."

The projected corn crop would still be the third-largest on record, and the soy crop would be the biggest on record. Ethanol makers and corn growers said corn supplies will be adequate, although smaller.

Corn for December delivery settled at US$5.28-1/4 a bushel, up 6%. December soy were US$11.35 a bushel, up 6.6%, and December wheat, at US$7.19-1/4, was up 9%. Futures prices also soared in Europe.

US live cattle and hog futures surged as an inducement to producers to fatten livestock in the face of rising feed prices.