Corn surged to the highest price since September and soybeans reached a four-year high after the U.S. cut its production forecasts because of the worst drought since 1988. Wheat extended this year’s rally.
The U.S. Department of Agriculture reduced its forecast of this year’s domestic corn crop, the world’s largest, by 12 percent just a month after predicting a record harvest. The domestic soybean estimate was cut 4.8 percent, and global wheat production will be less than expected in June as a dry spell hurts yields in Russia, the USDA said today in a report.
Areas of moderate to extreme drought have expanded to 53 percent of the Midwest, the main growing region, fueling crop- price gains that are the biggest this year among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index. The rallies are boosting costs for companies from McDonald’s Corp. (MCD:US) and Coca-Cola Co. to Archer Daniels Midland Co. and Smithfield Foods Inc.
“The drought of 2012 will be one for the records,” said Peter Meyer, the senior director for agricultural commodities at PIRA Energy Group in New York. “Whether it’s ethanol or livestock, no one is immune from this impending disaster. The ramifications will be widespread, affecting everything from your food to your gasoline.”
Corn futures for December delivery rose 0.7 percent to $7.2275 a bushel at 10:26 a.m. on the Chicago Board of Trade, after reaching $7.48, the highest for the most-active contract since Sept. 13.
Prices through yesterday surged 42 percent since mid-June, and crop conditions as of July 8 were the worst for that date since the drought of 1988, government data show. Corn is the biggest U.S. crop, valued last year at $76.5 billion in 2011.
Higher prices for corn, used to make animal feed, sweeteners and ethanol, may mean higher meat costs for U.S. restaurants including Popeyes Louisiana Kitchen and McDonald’s, while cereal and beverage makers, such as General Mills Inc. and Coca-Cola Co., spend more on grain and sweeteners.
“Corn is king, and corn is a commodity that drives every other commodity,” Alice LeBlanc, chief global supply chain officer at Popeyes, owned by AFC Enterprises Inc., said in an interview last week. “Unless we get some precipitation across the corn belt, the corn prices will stay high.”
Farmers probably will harvest 12.97 billion bushels (329.45 million metric tons) this year, down from a June prediction of a record 14.79 billion bushels, the USDA said. Analysts expected 13.534 billion, based on the average of 14 estimates in a Bloomberg survey. Inventories before the 2013 harvest may be 1.183 billion bushels, 37 percent less than the 1.881 billion forecast last month, the USDA said.
National yields will average 146 bushels an acre this year, down from a record 166 bushels estimated in June and the third straight annual drop, according to the government, which will release its first survey-based crop estimate on Aug. 10.
“That yield number is going to instigate some fears that things are going to be as bad as some are suggesting,” said Sal Gilbertie, who helps manage $79 million of assets as the president and chief investment officer of Teucrium Trading LLC in Santa Fe, New Mexico. “I don’t remember in recent history three years in a row of declining yields.”
World corn output in the crop year that begins Oct. 1 will be 905.23 million tons, down from 949.93 million forecast in June, the USDA said. World production last year was 873.7 million.
Global inventories on Oct. 1, 2013, will total 134.09 million tons, compared with 155.74 million forecast in June and 129.37 million projected for the end of this marketing year, the USDA said. Analysts were expecting 143.8 million tons.
Soybean futures for November delivery advanced 0.8 percent to $15.5025 a bushel in Chicago, after reaching $15.75, the costliest for a most-active contract since July 15, 2008. The record high was $16.3675 on July 3, 2008. Through yesterday, the oilseed jumped 27 percent this year.
U.S. farmers will harvest 3.05 billion bushels this year, down 4.8 percent from 3.205 billion estimated last month and less than 3.056 billion last year, the government said in a report. Reserve inventories before next year’s harvest will be 7.1 percent smaller than forecast a month ago and down 24 percent from 2012.
“USDA cut soybean production more than expected, and that means we will have seriously tight supplies until February when South America starts harvesting its new crops,” Mark Schultz, the chief analyst at Northstar Commodity Investment Co. in Minneapolis, said in a telephone interview.
Wheat futures for September delivery climbed 1.9 percent to $8.3725 a bushel on the CBOT, after touching $8.485, the highest since April 27, 2011. Through yesterday, prices jumped 28 percent since the end of May, partly because of dry weather in parts of Russia, Ukraine and Kazakhstan.
In the 12 months that started June 1, world output will total 665.3 million tons, down 1 percent from a June estimate, the USDA said. The agency cut its forecast for Russian production by 7.5 percent to 49 million tons and lowered its outlook for exports from the nation by 25 percent.
“The 30 to 40 percent losses in some areas of Russia are borne out by this production number today,” Mike Zuzolo, the president of Global Commodity Analytics & Consulting in Lafayette, Indiana, said by telephone. “These numbers confirm the losses” from the dry weather in Russia, he said.
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