By Jeff Wilson
CHICAGO - Drought damage to corn and soybean fields in the U.S., the world’s top grower and exporter, is eroding supplies of the nation’s two largest crops to below year-earlier consumption levels for the first time since 1974.
The government probably will say tomorrow that the U.S. corn harvest and inventories on Sept. 1 will be a combined 11.604 billion bushels, less than the 12.33 billion consumed and exported last year, according to a Bloomberg survey of 31 analysts. Soybean supplies will be 2.932 billion bushels, below the 3.157 billion used in 2011. Supplies failed to top usage from the previous year only twice since 1960 for corn and five times for soybeans, U.S. Department of Agriculture data show.
Record heat in June and July sparked the worst drought since 1956, sending corn and soybeans prices to record highs. Morgan Stanley predicted corn may rally 35 percent in a year, while Barclays Plc sees soybeans gaining 16 percent. Higher costs for dairies, grain processors and livestock producers helped send global food prices in September to the highest since March, United Nations data show.
“Supplies of both corn and soybeans will be tight, and we expect prices to rebound after the report,” said Bill Tierney, the chief economist for Chicago-based AgResource Co. and a former USDA grain analyst. “There is no evidence that current prices are rationing soybean supplies, and there will be less supply relief for corn” from South American harvests that start in February, he said.
Corn futures have jumped 15 percent this year through yesterday on the Chicago Board of Trade, and soybeans surged 28 percent. The 24 commodities tracked by the Standard & Poor’s GSCI Spot Index rose 3.5 percent in the period, led by wheat’s gain of 33 percent. The MSCI All-Country World Index of equities climbed 11 percent, and Treasuries returned 1.9 percent, a Bank of America Corp. index shows. Corn fell 0.8 percent today to $7.36 a bushel at 11:40 a.m. on the CBOT, and soybeans dropped 1.4 percent to $15.28 a bushel.
In its report tomorrow at 8:30 a.m. in Washington, the USDA probably will cut its domestic corn-production forecast to a nine-year low of 10.616 billion bushels, down 1 percent from 10.727 billion estimated in September and the fourth straight monthly reduction, according to the average of estimates in the Bloomberg survey. As recently as June, the government predicted a record harvest of 14.79 billion bushels.
Combined with the government’s Sept. 1 estimate of reserves at 988 million bushels, total U.S. supply will 6.3 percent below estimated consumption last year. Inventories before next year’s harvest may fall to 656 million bushels, the lowest since 1996, a Bloomberg survey showed.
About 25 percent of the corn crop was in good or excellent condition as of Sept. 30, compared with a five-year average of 52 percent, USDA data show. The dry weather also sped up the harvest, which was 69 percent complete as of Oct. 7, compared with a five-year average of 28 percent.
Plunging output in the U.S. is expected to erode global corn reserves before the Northern Hemisphere harvest to the lowest since 2007, a separate Bloomberg survey showed. The average U.S. cash price was $7.3027 on Oct. 8, 26 percent higher than a year earlier, boosting costs for meat companies including Sanderson Farms Inc. and ethanol makers including Valero Energy Corp.
Prices have dropped from the record of $8.49 on Aug. 10, as exports slowed and farmers increased sales from newly-harvested fields. Corn futures for December delivery touched $7.05 on Sept. 28, the lowest since July 12. Soybean futures that reached an all-time high of $17.89 on Sept. 4 slipped as low as $15.04 on Oct. 3.