The hottest summer since 1955 in parts of the Midwest has eroded corn yields in the U.S., the world’s largest grower and exporter, sending prices to record highs for the harvest season.
The U.S. Department of Agriculture on Sept. 12 may cut its crop forecast for a second straight month, to 12.554 billion bushels, down 2.8 percent from an August projection of 12.914 billion, according to the average estimate of 30 analysts surveyed by Bloomberg News. Inventories before next year’s harvest will be the lowest since 1996, according to the survey.
Cash-corn prices in Iowa and central Illinois, the two largest growing states, have risen at least 71 percent in the past year to the highest ever before harvesting began this month, government data show. Crops in parts of the Midwest were damaged by the hottest temperatures in more than 100 years, boosting costs for livestock producers including Tyson Foods Inc. (TSN) and ethanol makers such as Poet LLC.
“The crop could get smaller, and that will increase risks for prices to move higher,” Dan Cekander, the director of grain research for Newedge USA LLC in Chicago, said in a telephone interview yesterday. “Supplies will be tight for another year, and that puts a premium on adding acreage next year and producing a big crop” to rebuild depleted inventories, said Cekander, who forecast a harvest of 12.521 billion bushels.
Corn futures for December delivery fell 0.4 percent to $7.4525 a bushel as of 7:14 a.m. on the Chicago Board of Trade. Prices are up 61 percent in the past year.
Overnight temperatures in Iowa and Illinois were as much as 6 degrees Fahrenheit above normal in July, according to the National Climate Data Center show. Some farms from northeast South Dakota to southwestern Ohio had less than half the normal rainfall since July 1, data from the High Plains Regional Climate Center show.
The heat in July damaged plants during their reproductive stage, reducing the number of kernels on each ear, Kyle Tapley, an agricultural meteorologist for Rockville, Maryland-based MDA Information Systems Inc., said yesterday.
Earlier in the growing season, when ear size is determined, plants were stunted by delays in planting following floods and cool temperatures, said Tapley, who cut his crop estimate to 11.914 billion bushels from 12.223 billion a month ago.
Illinois will be the “trump card” for determining final U.S. yields because the heat and dryness was centered on the state, the second-biggest grower, Jim Bower, the president of Bower Trading Inc. in Lafayette, Indiana, said in an interview.
The USDA is predicting an average yield in Illinois of 170 bushels an acre, up from 157 bushels last year, even though crop conditions are worse. As of Sept. 4, about 40 percent of the plants were rated good or excellent, compared with 60 percent a year earlier, the agency said this week.
Leon Corzine, a past president of the National Corn Growers Association, said his farm near Assumption, Illinois, probably will produce 25 percent less corn this year than his five-year average of 200 bushels per acre.
“The heat and the dryness really hurt our crops, with the high nighttime temperatures restricting conversion of plant sugars into kernels,” said Corzine, who farms about 25 miles (40 kilometers) south of Decatur, Illinois, where Archer Daniels Midland Co., the biggest corn processor, is based. “We won’t run out of corn. People just won’t get as much at the prices they want to pay. There is supply rationing already happening.”
Higher corn prices are increasing feed costs for poultry producers including Sanderson Farms Inc. (SAFM), the fourth-largest U.S. chicken processor, which last month reported a third- quarter net loss of $55.7 million. The Laurel, Mississippi-based company’s cash-market corn costs were 85 percent higher in the three-month period than a year earlier, while soybean-meal expenses rose 26 percent, Sanderson said in a statement.
“We remain subject to very challenging markets,” Chief Executive Officer Joe Sanderson said on a conference call. The U.S. harvest “might still not be large enough to satisfy the needs of corn users next year without price rationing.”
Tyson Foods Inc., the largest U.S. meat producer, said last month that it was reducing the weight of chickens raised at some of its farms as poultry-meat inventories increased and feed costs climbed. Chicken prices climbed as much as 11 percent in the two weeks ended Aug. 19, the Springdale, Arkansas-based company said yesterday in a presentation to Barclays Capital.
“We will use less corn this year in livestock rations,” said Darrel Good, an economist at the University of Illinois in Champaign. “The abundance of lower-quality wheat both domestically and internationally is already slowing corn used in animal feed.”
Rising crude-oil prices, which jumped 21 percent in the past year before today, are supporting increased blending of corn-based ethanol in U.S. gasoline supplies, Good said.
Denatured-ethanol futures soared 55 percent in the past year through yesterday on the Chicago Board of Trade. U.S. inventories dropped to 17.6 million barrels as of Aug. 12, the lowest since January, and totaled 17.9 million as of Aug. 26, Energy Department data show.
“We have not seen a slowdown in ethanol production,” the University of Illinois’ Good said. “I do not foresee a drop in corn prices because we will need to encourage more planting next year to begin to rebuild inventories.”
High corn prices will maintain land values in the Midwest, Good said. Agricultural real estate in a region comprising Illinois, Iowa, Indiana, Michigan and Wisconsin soared 17 percent in the second quarter, the most since 1977, the Federal Reserve Bank of Chicago said Aug. 17.
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