Deep cut to US corn hopes sends futures higher

Corn futures stood higher by nearly the exchange limit in late deals in Chicago after US officials cut their estimate for the domestic crop significantly more than analysts had expected to account for weather damage.

The US Department of Agriculture, in its benchmark Wasde crop report, cut its estimate for the US corn harvest by 5.7 bushels per acre to 153.0 bushels per acre.

The downgrade, which was greater than the 3.1-bushels-per-acre cut that the market had expected, reflected "unusually high temperatures and below-average precipitation during July across the Corn Belt".

These conditions had "sharply reduced prospects", Kathleen Merrigan, acting secretary of agriculture at the USDA, said.

Furthermore, the USDA cut by 500,000 acres its estimate of the number of corn acres which would make it through to harvest, reflecting drought in the southerm Plains.

‘Higher expected prices’

The data fed through into a production forecast of 12.9bn bushels (328.0m tonnes), down more than 550m bushels (14.1m tonnes) on the previous estimate, and some 180m bushels short of market expectations – implying higher corn prices as buyers are forced to pay up for squeezed supplies.

USDA US corn data, diff. from last, and from (market forecast)

Harvested area: 84.4m hectares, -0.5m acres

Yield: 153.0 bushels per acre, -5.7 bushels per acre, (-2.6 bushels per acre)

Production: 12.91bn bushels, -556m bushels, (-168m bushels)

Year-end stocks: 714m bushels, -156m bushels

Estimates for 2011-12. Market estimates from ThomsonReuters

Indeed, the USDA, noting "higher expected prices", lifted its forecast for the values that farmers will receive to $6.20-7.20 a bushel, from $5.50-6.50 a bushel.

"The government indicated severe rationing will need to take place to accomplish the goal of distributing the reduced supply," US Commodities said.

"This report is a market mover," the broker said – adding that the briefing was bullish for wheat too, in implying that more of the grain "will need to enter the feed channels" to replace corn, and for soybeans, for which the USDA also cut its yield estimate by more than traders had expected.

Chicago’s best-traded December corn lot, which opened up the exchange limit of 30 cents a bushel, stood 25 ¾  cents a bushel, or 3.7%, higher at $7.14 ¼ a bushel with less than an hour of trading to go in Chicago.

‘Stressed by triple-digit heat’

The USDA noted that July "brought with it warmer-than-normal temperatures and limited rainfall to much of the US… negatively impacting crop conditions and soil moisture levels".

Selected USDA corn forecasts, change on last, and (year on year)

Brazilian production: 57.0m tonnes, +2.0m tonnes, (+3.6%)

European Union imports: 4.0m tonnes, -1.0m tonnes, (-45%)

Ukraine production: 16.5m tonnes, +1.0m tonnes, (+38%)

World production: 860.5m tonnes, -11.9m tonnes, (+4.7%)

End stocks to use ratio: 13.2%, (unchanged), -1.4 percentage points

Estimates for 2011-12

"Monthly temperatures reached as many as 10 degrees [Fahrenheit] above average in portions of the southern Great Plains, where the majority of summer row crops and many small grains were stressed by triple-digit heat and little-to-no rainfall."

The cut to 84.4m acres in the harvested area estimate reflected downgrades to the estimates for levels of crops in Kansas, Oklahoma and Texas that would make it through to harvest.

The downgrade to the US crop, the world’s biggest, also fed through into a cut of nearly 12m tonnes to the USDA’s estimate for global production, more than offsetting improved hopes for crops in Brazil, Europe and Ukraine.

But with hopes for demand reduced by the prospect of higher prices, the estimate for world corn stocks at the close of 2011-12 was reduced by less than 1.2m tonnes, to 114.5m tonnes.

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