3rd UPDATE: USDA Cuts Forecasts for U.S. Corn, Soybean Production
Last update: 7/11/2012 1:20:33 PM
--USDA cuts yield forecasts for U.S. corn and soybean crops by more than analysts expected
--Corn crop no longer expected to set production record
--Corn futures rise initially on report before turning negative; soybeans jump but then turn negative
(Adds details and analysts comments beginning in first paragraph, updates prices)
By Owen Fletcher and Bill Tomson
CHICAGO--The U.S. Department of Agriculture on Wednesday slashed its forecast for this year's corn harvest, projecting that the crop is no longer likely to set a record because of a worsening drought in the Midwest.
U.S. corn futures initially jumped on the revised forecast before turning negative later in the session, as traders said expectations for a lower yield already had been priced into futures. Separate worries about slowing ethanol production also pressured prices.
The USDA, in a monthly supply-and-demand report, pared its estimate for this fall's corn yield by a higher-than-expected 12% from its forecast last month, to 146 bushels an acre from 166 bushels an acre. Analysts on average had expected the USDA to project a yield of 154.1 bushels an acre, according to a Dow Jones Newswires poll.
Soon after the report, front-month corn futures rose 3%, moving to within about 15 cents from an all-time high, and deferred futures climbed 4% to fresh contract-life highs.
But the USDA report wasn't enough to sustain those levels, as traders said the corn estimates only fell below expectations because traders had expected the USDA to take a more conservative stance. Front-month corn futures recently were down 2.8%.
"Even though the yield was under market expectations, we got exactly what we wanted," said Tregg Cronin, a market analyst at Country Hedging in Minnesota.
Sterling Smith, an analyst for Citigroup Global Markets Inc. in Chicago., said it "looks like we have found, at least for the time being, a little bit of a top" in corn prices.
The USDA now projects a corn harvest of 12.97 billion bushels, down from its record-breaking previous forecast of 14.79 billion bushels and below the previous record of 13.09 billion bushels in 2009. Production in the U.S., the world's biggest corn producer and exporter, would still be up from 12.36 billion bushels last year.
"Persistent and extreme June dryness across the central and eastern Corn Belt and extreme late June and early July heat from the central Plains to the Ohio River Valley have substantially lowered yield prospects across most of the major growing regions," the USDA said.
The hot, dry weather in much of the Corn Belt is hitting the crop just as it undergoes its delicate pollination stage, when moisture has its biggest influence on potential yields.
Chicago Board of Trade corn futures for July delivery, thinly traded ahead of the contract's expiration on Friday, recently were down 21 cents, or 2.8%, at $7.40 a bushel. December corn was down 15 cents, or 2.1%, to $7.02 1/2 a bushel.
The USDA also cut its yield forecast for the soybean crop to 40.5 bushels per acre from 43.9 bushels per acre, due to the drought in the Midwest. Analysts on average had expected a smaller cut, to 42.3 bushels an acre.
Soybean production this year is now forecast at 3.05 billion bushels, about 5% lower than the 3.205 billion bushels the USDA predicted in June.
Lower production will mean weaker exports, lower domestic stocks and reduced soymeal and soyoil production, the USDA said.
"Soybean crush is projected at 1.61 billion bushels, down 35 million reflecting the impact of higher soybean meal prices on meal exports and domestic disappearance," the USDA said. "Soybean exports for 2012-13 are reduced 115 million bushels to 1.37 billion, reflecting lower U.S. supplies."
The USDA also cut its forecasts for soybean inventories, raising worries that supplies could fall to precariously low levels, potentially making it difficult for processors and exporters to obtain physical supplies.
The USDA forecast soybean inventories on Aug. 31, the end of the current marketing year, to be 170 million bushels, in line with expectations and down from its last forecast of 175 million. For the end of the next marketing year, it forecast inventories of 130 million bushels, down from its last forecast of 140 million and below analysts' average prediction of 134 million.
Soybean futures rose on the USDA forecasts before turning negative later in the day. Thinly traded July soybeans were down 16 1/2 cents, or 1%, at $16.32 1/4 a bushel. November soybeans were down 6 1/4 cents, or 0.4%, at $15.32 1/4 a bushel. Soybean futures set new all-time highs on Monday.
The USDA cut its forecast for corn exports in the 2012-13 marketing year by 300 million bushels to 1.6 billion bushels and also said less of the crop will be going to make ethanol.
The ethanol industry is now forecast to consume 4.9 billion bushels of corn, down from the June forecast of five billion.
Wheat futures also rose on Wednesday before turning negative, after the USDA cut its forecasts for domestic wheat inventories and production.
The USDA forecast domestic wheat inventories at the end of the 2012-13 marketing year to be 664 million bushels, below analysts' average expectation of 725 million. The USDA pegged total U.S. wheat production this year at 2.22 billion bushels, slightly below expectations for 2.25 billion.
Thinly traded CBOT July wheat was recently down 4 1/2 cents, or 0.6%, at $8.00 1/4 a bushel. Most-active September wheat was down 10 1/4 cents, or 1.2%, at $8.11 a bushel.
-Ian Berry contributed to this article.
Write to Owen Fletcher at owen.fletcher@dowjones.com and Bill Tomson at bill.tomson@dowjones.com
(END) Dow Jones Newswires
July 11, 2012 13:20 ET (17:20 GMT)
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