Corn, soybean and wheat prices surged, signaling higher costs for food and biofuels, after the government said U.S. farmers will harvest smaller crops than forecast last month following a damaging heat wave.
The U.S. Department of Agriculture cut its corn-crop estimate by 4.1 percent, reduced the soybean forecast by 5.2 percent, and said spring-wheat production will be 5.2 percent below what it predicted in July. The harvests for all three crops would be less than expected by analysts surveyed by Bloomberg. The U.S. is the biggest exporter of the crops.
Parts of the Midwest, the main growing region, were the hottest since 1955 last month. Smaller supplies of corn may increase costs for ethanol refiners such as Poet LLC, Archer Daniels Midland Co. and Valero Energy Corp. (VLO) and meat producers Tyson Foods Inc. (TSN) and Smithfield Foods Inc. (SFD), which buy the grain for feed. The price of corn, the biggest U.S. crop, has jumped 74 percent in the past year.
“Food is needed worldwide, so we’re going to be looking at higher prices,” Shawn McCambridge, the senior grain analyst at Jefferies Bache LLC, said in a telephone interview from Chicago.
Corn production will total 12.914 billion bushels (328 million metric tons), compared with 13.47 billion projected in July, the USDA said today in its first survey-based estimate for the crop. The average prediction of 31 analysts was for 13.079 billion. Last year’s crop was 12.447 billion bushels. Yields were cut to 153 bushels an acres, down from 158.7 in July.
“Ears did not pollinate well in major parts of fields across the Midwest,” Iowa State University agronomists said this week in a report.
“We needed a perfect growing season, and this was far from it,” Jason Britt, the president of brokerage Central States Commodities Inc. in Kansas City, Missouri, said by telephone. “From spring flooding to late planting to a hot summer, a combination of things has been thrown at this crop.”
Corn futures for December delivery gained 25.5 cents, or 3.7 percent, to close at $7.14 a bushel at 1:40 p.m. on the Chicago Board of Trade, the biggest gain for a most-active contract since Aug. 2. The price has surged from a year ago on falling global reserves and rising feed, fuel and food demand. The U.S. is the world’s largest grower.
The soybean harvest will total 3.056 billion bushels, down from last month’s forecast of 3.225 billion, the USDA said. The average estimate of 31 analysts was 3.184 billion bushels. In 2010, production in the U.S., the world’s largest grower, was 3.329 billion.
“If soybeans don’t get rain across the next week, the hot weather next week will reduce the yield further,” Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said in a telephone interview. “Supplies are going to be tight this year, and South America cannot have a production problem,” once planting begins in September, he said.
Soybeans for November delivery rose 30.25 cents, or 2.3 percent, to settle at $13.3175 a bushel on the CBOT, the biggest jump since May 18. The most-active contract has gained 31 percent in the past year.
Falling supplies may reduce margins for oilseed processors such as Bunge Ltd. and Archer Daniels Midland. The crush spread -- the difference between the cost of a bushel of soybeans and the value of the meal and oil it can produce -- has declined 39 percent this year.
About 75 million acres (30.4 million hectares) were planted with soybeans this year, down from 75.208 million estimated in June, according to the USDA. Farmers reduced acreage from 77.404 million last year to plant more profitable corn.
Goldman Sachs Group Inc. said in a report that the USDA numbers for corn and soybeans were “bullish,” and that it expects agricultural-related companies to “trade broadly higher.” The bank recommended buying shares of companies including Monsanto Co. (MON), the world’s biggest seedmaker, Potash Corp. of Saskatchewan Inc., the biggest producer of fertilizer, and farm-equipment-maker AGCO Corp. (AGCO)
Spring-wheat production may total 522 million bushels, down from 550.7 million estimated in July, the USDA said. The average estimate of 20 analysts in a Bloomberg News survey was 536 million. Last year’s harvest of spring wheat, used to make bread, was 616 million bushels.
The USDA reduced its planted acreage estimate from its June 30 planting report, cutting 500,000 acres from Montana and 450,000 from North Dakota. The revision was made after farmers in four northern states were resurveyed in July, as many hadn’t finished sowing when the government collected data for its earlier report. Parts of North Dakota, the biggest producer, had triple the normal rainfall from April to June, National Weather Service data show.
“Wheat fell into line with what we were looking for” after an annual tour of crops in the northern Great Plains signaled worse spring-crop conditions, Jefferies Bache’s McCambridge said. “As corn prices move higher, wheat will benefit to some degree as it will replace corn in feed.”
Total U.S. wheat production may fall to 2.077 billion bushels, down from last month’s estimate of 2.106 billion, the USDA said. Analysts expected 2.068 billion. In 2010, 2.208 billion bushels were harvested.
Wheat futures for December delivery rose 13.75 cents, or 1.9 percent, to close at $7.33 a bushel in Chicago, capping the first three-day rally since May 27. The price has gained 1.1 percent in the past year.
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