Bloomberg News

Crop Traders Extend Bullish Streak on U.S. Drought: Commodities

July 20, 2012

Crop Traders Extend Bullish Streak on U.S. Drought

Soybeans advanced 37 percent to $16.5325 a bushel on the Chicago Board of Trade this year and reached a record $16.7375 yesterday. Corn rose 22 percent to $7.86 a bushel, touching $7.99 yesterday, less than 0.1 percent below its all-time high. Photographer: Tim Boyle/Bloomberg

Corn and soybean traders are bullish for a 13th consecutive week on mounting concern that yields will keep dropping amid the worst U.S. drought in a half century.

Twenty analysts surveyed by Bloomberg expect soybeans to climb next week, after reaching a record yesterday. A further five were bearish and three neutral. Nineteen predicted gains in corn, five saw a decline and three anticipated little change. Hedge funds are holding the biggest bet on rising soybeans since the beginning of May and the largest wager on corn since April, U.S. Commodity Futures Trading Commission data show.

The drought may persist in the Midwest for the rest of the growing season, the U.S. government said this week. Above- average temperatures and below-normal rainfall will continue through next week, according to meteorologist Telvent DTN. The 56 percent jump in corn and 28 percent gain in soybeans since mid-June may spur another bout of global food-price inflation, after surges in 2008 and 2011 that sparked civil unrest in developing countries, Barclays Plc said in a report July 18.

“There’s not much reason for us to see a slowdown in the price rally,” said Erin FitzPatrick, an analyst at Rabobank International in London, who predicted in April that soybeans would reach a record. “The size of the 2012-13 harvest is shrinking every day that we don’t get rain or a cooling off in the U.S. It’s fundamentally still bullish, even though we’re at these record prices.”

Prices Rally

Soybeans advanced 39 percent to $16.7775 a bushel on the Chicago Board of Trade this year and reached a record $16.91 today. Corn rose 22 percent to $7.88 a bushel, touching $7.99 yesterday, less than 0.1 percent below its all-time high. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.6 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities gained 3.9 percent. Treasuries returned 2.6 percent, a Bank of America Corp. index shows.

More than half of the contiguous U.S. states were in moderate to extreme drought at the end of June, the highest percentage since December 1956, according to the National Climatic Data Center. Thirty-one percent of the U.S. corn crop was in good or excellent condition as of July 15, the least for the date since 1988, according to the U.S. Department of Agriculture. Thirty-four percent of soybean fields received the top ratings, also the worst since 1988.

Lower Harvest

The USDA cut its forecast for this year’s U.S. corn harvest by 12 percent to 12.97 billion bushels on July 11, down from a June estimate of 14.79 billion bushels. The agency reduced its soybean projection by 4.8 percent to 3.05 billion bushels. Morgan Stanley predicted yesterday corn output at 11.89 billion bushels and soybean production at 2.99 billion bushels.

China may import a record 61 million metric tons of soybeans and 5 million tons of corn in the 2012-13 season, the USDA said July 11. The Asian nation is the world’s biggest soybean consumer and second-largest user of corn after the U.S. While China’s growth will slow to 8 percent this year from 9.2 percent in 2011, that’s still more than double the anticipated expansion globally, the International Monetary Fund estimates.

The surge in crops is raising costs for livestock farmers who use them as feed. That may spur them to slaughter more animals, lowering U.S. retail prices for meat that are at or near a record. Goldman Sachs Group Inc. cut its outlook for livestock prices on July 16 and forecasts soybeans at $16.25 in three months and corn at $6.90.

Costs Increase

U.S. hog producers may lose about $20 per animal over the next three quarters, according to a July 9 report by Chris Hurt, an agricultural economist at Purdue University in West Lafayette, Indiana. Pig farmers in the U.K. are losing about 18 pounds ($28) a head, according to the Agriculture and Horticulture Development Board’s pork unit.

Costlier crops may curb demand from biofuel producers. U.S. ethanol output fell 2.3 percent in the week ended July 13 to the lowest level since the Energy Department began tracking weekly data in 2010. Producers are losing about 26 cents on each gallon of ethanol made based on fuel and corn contracts for September, data compiled by Bloomberg show. More U.S. corn went to ethanol than livestock feed in 2010-11 for the first time ever.

Limited Production

Farmers will buy more fertilizer next year as they try to recoup crops lost this year, according to Karen Ubelhart, an analyst for Bloomberg Industries. Growing demand for food and limited production growth will support nutrient prices, Yara International ASA, the largest publicly traded nitrogen- fertilizer maker, said July 18. The Oslo-based company’s shares jumped 25 percent since mid-June and will gain 11 percent in 12 months, according to the average of 27 analyst estimates compiled by Bloomberg.

In other commodities, seven of 12 traders and analysts surveyed by Bloomberg expect raw sugar to advance next week and four were bearish. The commodity gained 2.4 percent this year to 23.87 cents a pound on ICE Futures U.S. in New York.

Eleven people surveyed said copper will gain next week and six predicted a drop, while nine were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 0.7 percent to $7,545 a ton this year.

Ten of 26 traders and analysts surveyed said gold would increase next week and the same amount predicted little change. Futures on the Comex exchange in New York added 1 percent since the start of January to $1,583 an ounce, after 11 years of gains. Holdings in bullion-backed exchange-traded products are about 0.4 percent below the record 2,413.6 tons reached July 5, data compiled by Bloomberg show.

Stimulus Measures

Federal Reserve Chairman Ben S. Bernanke repeated in congressional testimony July 18 that the central bank is ready to take further action to boost the recovery if necessary. China cut rates in June and July, the European Central Bank reduced borrowing costs to a record low this month and the Bank of England restarted bond purchases two months after halting its expansion of stimulus.

“The most important thing is that we’re seeing signs that China is starting to stimulate much more aggressively,” said Dan Smith, a commodities analyst at Standard Chartered Plc in London. “There have already been a lot of coordinated rate cuts. Once you get this stimulus coming though often that means you’re close to the bottom of the cycle for commodities.”

Gold survey results: Bullish: 10 Bearish: 6 Hold: 10
Copper survey results: Bullish: 11 Bearish: 6 Hold: 9
Corn survey results: Bullish: 19 Bearish: 5 Hold: 3
Soybean survey results: Bullish: 20 Bearish: 5 Hold: 3
Raw sugar survey results: Bullish: 7 Bearish: 4 Hold: 1
White sugar survey results: Bullish: 7 Bearish: 4 Hold: 1
White sugar premium results: Widen: 8 Narrow: 1 Neutral: 3

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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