Bloomberg News

Corn Drops From 10-Month High as Rally Curbs Demand; Soy Falls

July 11, 2012

Corn futures tumbled from a 10-month high on speculation that a drought-fueled rally in prices will curb demand. Soybeans fell from a four-year peak on forecasts for rain that may boost yields.

Ethanol output in the U.S. fell 4.2 percent last week to the lowest in almost two years, the government said today, and Valero Energy Corp. (VLO:US) has halted production at two distilleries. The U.S. Department of Agriculture predicted that 2012 meat and poultry output will be 0.7 percent smaller than forecast last month. Corn prices through yesterday surged 42 percent since mid-June as crops withered under the worst drought since 1988.

“Demand is shutting down, led by the ethanol slowdown,” Chad Henderson, a market analyst at Prime Agricultural Consulting Inc. in Brookfield, Wisconsin, said in a telephone interview. “People are already liquidating the hog-breeding herd and dairy cows. Physical consumers can’t use corn and turn a profit at these prices.”

Corn futures for December delivery fell 1.9 percent to close at $7.04 a bushel at 2 p.m. on the Chicago Board of Trade, the third drop in four sessions.

Earlier, the grain reached $7.48, the highest for the most- active contract since Sept. 13. Today, the USDA cut its domestic production estimate by 12 percent, a month after predicting a record harvest. The U.S. is the world’s largest grower and exporter.

Crop conditions as of July 8 were the worst for that date since the drought of 1988, and areas of moderate to extreme drought have expanded to 53 percent of the Midwest, government data show.

Soybean Weather

Soybean fields from Louisiana to southern Ohio will get 1 inch (2.5 centimeters) to 4.5 inches of rain in the next five days, according to the National Weather Service. As much a 1 inch may help crops in the northern and western Midwest beginning next week, the government said.

The USDA said today that dry weather may cut yields by 7.7 percent, leaving output at 3.050 billion bushels this year, compared with 3.205 billion estimated in June.

“Some of the weather models are wetter into next week, and that set off selling in soybeans,” which can produce new flowers and boost yields in July and August, Richard Feltes, a vice president at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “It’s a classic run-up in prices into a key USDA report, and people sold on the news.”

Soybean futures for November delivery fell 1 percent to $15.225 a bushel in Chicago. Earlier, the price rose as much as 2.4 percent to $15.75, the highest since July 2008.

Demand Cuts

U.S. corn usage in the year that begins Sept. 1 may reach 12.72 billion bushels, down 7.7 percent from the forecast in June, the government said today. Demand for soybeans was cut 4.6 percent to 3.105 billion bushels from a month earlier.

“Trade action today suggests much of the U.S. crop-yield erosion is already accounted for by USDA,” Feltes said. “Dismal chart action today could mark a near-term top as some fund-longs opt to lock in profit amid a belief that necessary corn rationing is under way.”

Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, followed by soybeans at $35.8 billion, government figures show.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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