USDA lowers corn and soy forecasts on poor weather
The reduction in crop size, which was the result of poor growing weather in August, could be the start of a trend, especially because the crops were already lagging developmentally because of delayed planting and spring floods in parts of the Midwest, grain analysts warned.
The USDA estimates US 2008 corn production at 12.072 billion bushels, down 216 million from the agency's August estimate. The soy crop is expected to come in at 2.934 billion bushels, down 39 million bushels from last month's forecast. In both cases, the agency said, weather during August lowered the average yield for each crop, thereby lowering total production.
"These numbers are subject to change," said Greg Wagner, senior commodity analyst at AgResource Co. "They're not chiseled, but we could see a reduction in October (crop production report) for corn and bean yields. This could portend further reductions in production as the USDA gets a better handle on crop size."
The USDA, however, did point out in its report that if its current estimates are realized, 2008 corn production would be the second-largest ever and soy production would be the fourth-largest on record.
The crop data, along with other factors such as a weak US dollar, gave grain markets a boost Friday.
Chicago Board of Trade December corn futures settled up the 30-cent, exchange-imposed trading limit at US$5.63 1/4 a bushel. November soy settled 26 cents higher at US$12.02 a bushel.
Friday's gains are in stark contrast to a lengthy slump in commodities prices brought on by a rallying US currency and an exodus by non-traditional speculative traders. Corn and soy are both down nearly 30 percent from their all-time highs set this summer.
The cut in production for both corn and soy will keep ending stocks for both crops tight. Ending stocks are what's left over after accounting for supply and demand.
On Friday the USDA said soy ending stocks for the 2008-09 marketing year would be 135 million bushels, while corn ending stocks would total 1.018 billion.
"The USDA report is bringing the realisation that the crop is not out there, and with corn 2008-09 (ending) stocks down close to a billion bushels it puts end-users on notice," said Mike Zuzolo, analyst at Risk Management Commodities Inc.
David Hightower, principal and founder of the Hightower Report, said corn ending stocks could fall under a billion bushels because he believes the US livestock herd was not trimmed as much as expected earlier this year when corn prices were at their highest.
The drop in prices from the summer highs has meant end-users - those in the ethanol industry, importers and livestock producers - used the break to step up demand, analysts said. The commodity price drop sent a signal the supply situation was not as dire as was expected, but given Friday's USDA data, that might have been the wrong signal.
The tight ending stocks situation for corn is helping lift the fertiliser sector Friday. The sector had fallen along with the recent overall drop in commodity prices. Potash Corp. (POT), Terra Industries (TRA) and Agrium (AGU) recently were trading more than 6 percent higher, while Mosaic (MOS) and CF Industries (CF) were up more than 5 percent.
As for meat producers, grain prices, despite being off their summertime peak, are still higher than a year ago. With the cuts to US corn and soy, that squeeze will stay on livestock producers.
"Protein companies will continue to face another year of higher grain costs in 2009 that will be challenging to overcome with pricing," said Credit Suisse analyst Robert Moskow.
The tight ending stocks situation also sets the stage for a fierce acreage battle in 2009. Corn and soy are grown mostly in the same region of the US and roughly at the same time, and prices tend to rise as the crops compete for acreage.
Such a scenario could be good for seedmakers such as Monsanto (MON) and Syngenta (SYT), which recently were trading 4 percent and 3 percent higher respectively.
