July 13, 2011
USDA report predicts bigger corn supply in fall
The US Department of Agriculture (USDA) estimated in its monthly report that 880 million bushels of corn will be left over when the harvest begins in the fall, an increase from the previous estimate of 730 million bushels, easing concerns of a grain shortage.
The projected supply increase, released Tuesday (Jul 12), was lower than analysts had forecast, resulting in corn prices rising about US$0.09 cents to US$6.42 a bushel in morning trading. Even so, prices are about 20% lower than the record US$7.99 a bushel they hit in early June.
Higher corn prices led farmers to plant the second biggest corn crop this year since World War II, helping offset growing demand from the US ethanol industry and overseas livestock producers.
The USDA warned that a bigger crop does not guarantee lower food prices, as a drought or flood could limit the size of the harvested crop. Many of the acres planted this spring were on marginal land that will not yield much grain, and many farmers planted during wet weather just because they knew they could get the crops insured.
Analysts say consumers could see some relief at the supermarket by early 2012, as a huge harvest in August could ultimately slow food inflation, but it typically takes six months for changes in commodity prices to affect retail food prices in the US. For all of 2011, the USDA predicts food prices will increase 3-4%.
Traders will be watching the weather in Iowa, Illinois, Nebraska, and other critical farm states to make sure this year's crop comes off as promised. The USDA estimates farmers will grow an average 158.7 bushels of corn on every acre planted.
If that figure drops by even two bushels an acre, the supply picture could become just as grim as it was a month ago when corn traded at record highs, said Jason Ward, an analyst with Northstar Commodity in Minneapolis. "Now, all the market focus will shift to weather, and US weather alone," Ward said.
A drought across the South, from Arizona to Florida, should not have a big effect on the nation's corn, wheat, or soy crops, Ward said, but it could stunt cotton production. The USDA estimates farmer will produce 16 million bales of cotton from this year's crop, down from the 17 million it predicted last month.
Farmers switched their acreage into corn when corn futures rose. The size of this year's corn crop will be 92.3 million acres, about 9% larger than the average annual corn crop over the past decade. The only crop bigger in the past 67 years was planted in 2007.
Farmers chose to plant corn at the expense of this year's soy crop, planting only 75.2 million acres of soy, about 3% less than last year. Farmers have a limited supply of good farmland and usually trade one crop for another on their acreage, and soy rose US$0.04 in morning trading to US$13.52 a bushel as a result.
The USDA estimates the soy supply will be slightly bigger in August than expected last month, with the reserves rising to 200 million bushels from 180 million. But the decision to replace soy acres with corn will pinch next year's supply, with the USDA predicting 175 million bushels on hand next fall, down from the 190 million predicted last month.