Bloomberg News

Corn-Crop Cuts by USDA Seen Premature as Goldman Predicts Record

August 19, 2013

Government forecasters may have to reverse three straight months of lower U.S. corn-crop estimates as warm weather and near-record planting spur Goldman Sachs Group Inc. and Deutsche Bank AG to predict a record crop.

The U.S. Department of Agriculture on Aug. 12 said output this year will be 13.763 billion bushels (349.6 million metric tons), down 2.7 percent from what it expected in May, after rain delayed planting and low temperatures slowed growth. With most fields two months from harvest, Goldman said normal weather until then will yield 14.14 billion bushels, and Deutsche Bank forecast 14.25 billion, up 6.4 percent from June.

Farmers sowed the most acres since 1936 after rain delays in April and May. Prospects of an output rebound after the 2012 drought sent prices to a 35-month low on Aug. 13, cutting costs for buyers including Tyson Foods Inc. Christina McGlone at Deutsche Bank says the USDA will boost its forecast of the crop, which the Professional Farmers of America starts surveying today in its tour of more than 1,000 Midwest farms.

“We are going to harvest a record corn crop,” said Dave Smoldt, a vice president for FCStone LLC in West Des Moines, Iowa, who predicts a harvest of 13.993 billion bushels. “There are high plant populations, and the cool temperatures have helped corn yields. The crop needs the warmer weather and more rain to finish strong.”

Corn futures on the Chicago Board of Trade tumbled 32 percent this year to $4.7425 a bushel on Aug. 16, capping the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Index, which rose 0.5 percent. Last year, corn reached $8.49, the highest ever, after drought damaged yields.

Record Crop

Even after reducing forecasts every month since May, when the USDA estimated the crop at 14.14 billion bushels, the government is anticipating the biggest harvest ever, up 28 percent from last year’s 10.78 billion. The U.S. is the largest grower and exporter.

The reduction in the U.S. forecast, a cut equivalent to 4.75 million tons, was more than made up by the USDA’s revised increases of 3 million tons each for crops in Brazil and Ukraine, leaving supplies ample and signaling lower prices, Damien Courvalin, a Goldman analyst in New York, said in an Aug. 12 report. The bank kept its corn forecast unchanged, saying prices will be at $4.25 in three, six and 12 months.

World output will surge 11 percent to a record 957.15 million tons, exceeding demand by 27.06 million tons, the biggest surplus in 17 years, USDA data show. Inventories before next year’s harvest will jump 22 percent to a 13-year high of 150.17 million.

Cheaper Food

Hedge funds and other large speculators increased their net-short position, or bets on lower prices, to a record 123,211 Chicago futures and options contracts as of Aug. 13, U.S. Commodity Futures Trading Commission data show. The net holdings have been bearish since early July.

Plunging corn futures sparked a grain slump that helped send global food costs to a 13-month low in July, UN data show. Cheaper livestock feed helped boost profit at Tyson (TSN:US), the largest U.S. meat processor. The Springdale, Arkansas-based company reported earnings Aug. 5 that topped analysts forecasts, fueled by record profit in its chicken unit and wider margins on beef. The shares are up 62 percent this year.

More than 120 analysts, traders, farmers and processors will inspect farms in Ohio, Indiana, Illinois, Iowa, Nebraska, South Dakota and Minnesota over the next four days as part of the 21st annual Pro Farmer crop tour. The farm newsletter will compile the inspection findings into daily summaries and then release its own estimate of the U.S. crop size Aug. 23.

“The crop potential is strong, and we believe that the corn yield will be revised up in subsequent reports, particularly in Indiana, Nebraska, Illinois and South Dakota,” Deutsche Bank’s McGlone said in an Aug. 12 report. Her forecast is up from 13.395 billion bushels in June.

Freeze Risk

Not everyone is expecting the crop to improve, or that it will be mature enough to harvest before the first freeze. Planalytics Inc., a Wayne, Pennsylvania-based researcher that uses satellite images to make production forecasts, said Aug. 16 that it expects yields of 154.5 bushels an acre, matching the USDA’s Aug. 12 estimate. Goldman forecast 161 bushels, and Deutsche Bank predicted 160.8.

U.S. farmers filed crop-insurance claims on 3.41 million acres that they were unable to plant because of excessive rain, up from 262,467 last year, according to an Aug. 15 USDA report that sent corn prices to their biggest gain in five weeks. Bennett Meier and Alan H. Lee, analysts at Morgan Stanley in New York, said in a report that the data “support our claim that official U.S. acreage estimates are too optimistic” and that the harvest will be about 13.513 billion bushels.

Delayed Growth

Crops slowed by delayed planting and cool temperatures are more vulnerable to yield damage from a freeze this year, said Mike Day, the president of Rural Community Insurance Services, a crop-insurance subsidiary at Wells Fargo & Co., the largest U.S. farm lender.

About 32 percent the crop in the top 18 growing states was beginning to fill kernels with sugars and starch as of Aug. 11, down from 78 percent a year earlier and 48 percent on average the prior five years, the USDA said. Crop ratings last week declined in four of the seven states tour participants will visit because of drier weather. The government will update its assessments today.

Weather patterns this summer haven’t allowed the Northern Hemisphere to warm up normally, and reports from the arctic suggest ice accumulations are way ahead of recent years, increasing the risks of an early freeze and damage to immature corn plants in September, World Weather Inc. said in a report Aug. 15 to clients.

Behind Normal

“Farmers who received rain the past month are looking at some huge yield potentials, but if they missed the rain, the conditions are declining,” said Scott Docherty, the general manager for Top Flight Cooperative in Monticello, Illinois, which buys more than 34 million bushels of corn and soybeans annually in five counties from Decatur to Champaign. “The other concern is the lateness of the crops, which are at least two weeks behind normal and more susceptible to freeze damage.”

USDA data already shows fields have the third-highest plant populations ever with 27,500 ears per acre, compared with a record 27,750 in 2009. Ear weights were estimated at 0.32 pound (0.15 kilogram), up from last year’s drought-reduced total of 0.27 pound. The record was 0.345 pound in 2009. A bushel of corn weighs 56 pounds.

Government estimates have been based on limited data, partly because planting delays left too many immature plants, said Dale Durchholz, the senior market analyst for AgriVisor LLC in Bloomington, Illinois. More field data collected in September, October and November will find higher yield potential because grain weights will be bigger, he said.

Underestimating Potential

Because the crop was more immature than normal, the USDA’s Aug. 12 forecast was based on a five-year average for estimating ear weight, Durchholz said. That figure included 2012, which was 20 percent below average, implying the government has underestimated yield potential, he said.

The number of higher-yielding fields will exceed the low-yielding ones because Midwest temperatures were as much as 6 degrees Fahrenheit below normal in the past four weeks, which allowed improved corn reproduction even as they slowed development, said Terry Gardner, the director of marketing for DuPont Co. (DD:US)’s Pioneer unit, the world’s second-biggest seed producer. A warm spell expected this week will accelerate the filling of kernels with starch, he said.

“The corn crop is looking pretty good in general, outside of the drowned-out areas in parts of Iowa and Minnesota,” Gardner said. Production also will get a boost from widespread use of hybrid seeds, which “are better able to handle the weather conditions, disease and pests,” he said.

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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