Bloomberg News

Crop Prices Drop After Surging to Record on U.S. Midwest

July 23, 2012

Crop Prices Drop After Surging to Record on U.S. Midwest Drought

The condition of the corn crop deteriorated for the sixth straight week, the longest such streak since 2003, as the drought spread, the USDA said last week. Photographer: Daniel Acker/Bloomberg

Corn and soybeans declined after surging to records as global economic concerns prompted investors to sell riskier assets, dragging down equities and commodities including crops and crude oil.

December-delivery corn advanced 0.5 percent to $8 a bushel on the Chicago Board of Trade, beating the previous high of $7.9925 set in 2008, before dropping 0.7 percent to $7.905 at 2:57 p.m. in Singapore. Soybeans peaked at $16.915 a bushel, beating a high set last week, before dropping to $16.6675.

Corn has soared more than 55 percent since June 15 as the worst U.S. drought in decades cut yields, signaling higher food prices and boosting expenses for producers of livestock feed and ethanol. While today’s falls were driven by concerns that Greece may quit the euro zone and growth in China may slow, Paul Deane, an agricultural economist at Australia & New Zealand Banking Group Ltd. (ANZ), said the rally in grains and soybeans will resume.

“What we’re seeing this morning is probably just a little bit of reaction to the macro-economic situation,” Deane said in a Bloomberg Television interview. “In the short term, there’s a little bit of susceptibility if we get a major macro-risk event,” after the rally lured investors.

Wheat for September delivery dropped 1.5 percent to $9.2925 a bushel, after climbing to $9.4725, the highest price for a most-active contract since August 2008. Soybean meal for December delivery advanced as much as 1.1 percent to $509.80 per 2,000 pounds in Chicago, an all-time high for the most-active contract, before declining 0.9 percent to $499.90.

Greece Concern

Commodities as tracked by the Standard & Poor’s GSCI Spot Index fell today as oil, copper and gold dropped and the dollar rallied. Economic growth in China, the world’s largest consumer of grains and soybeans, may cool this quarter, a Chinese central bank adviser said. German Vice Chancellor Philipp Roesler told broadcaster ARD yesterday that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.”

Corn is in the fourth year of a bull market, heading for the longest rally since 1964. The drought that prompted the U.S. to declare almost 1,300 counties in 29 states as natural- disaster areas, may cause a global shortage, said Commonwealth Bank of Australia. (CBA) Global production was estimated by the U.S. Department of Agriculture on July 11 to rise to a record 905.2 million tons in 2012-2013, before the drought worsened. World use was predicted by the agency to reach 900.5 million tons.

Food Costs

The U.S. drought may spark a rebound in global food prices from this month through October, halting a slide that sent costs in June to the lowest in 21 months, Abdolreza Abbassian, an economist in Rome at the United Nations’ Food & Agriculture Organization, said on July 5.

“If the hot, dry weather pattern continues for another month, it could be a drought of Biblical proportions,” Dan Cekander, director of grain research for Newedge USA LLC, said in a telephone interview before corn reached the record. “We have to define the extent of the damage.”

The condition of the corn crop deteriorated for the sixth week, the longest such streak since 2003, the USDA said last week. About 31 percent of the crop was in good or excellent condition as of July 15, from 40 percent a week earlier, the agency said. Soybean conditions also worsened for a sixth week, with the share rated good to excellent slipping to 34 percent as of July 15, the worst since 1988, according to USDA data.

Corn yields in Iowa, the biggest U.S. grower, will be smaller than the government forecast this month, Governor Terry Branstad said last week. The USDA will update its forecasts for U.S. and global supply and demand on Aug. 10.

Higher corn prices may boost meat costs for companies such as Popeyes Louisiana Kitchen and McDonald’s Corp. (MCD:US) Cereal and sweetener expenses for General Mills Co. and Coca-Cola Co. (KO:US) may climb. Archer Daniels Midland Co. (ADM:US), the world’s biggest grain processor, also faces higher costs. The company uses corn in ethanol, sweeteners and livestock feed.

Corn may climb to $9 if U.S. yields fall below 140 bushels an acre, barring a “demand meltdown,” UBS AG said last week in a report. Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, government figures show.

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Steve Stroth at sstroth@bloomberg.net


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