Soybeans Surge to Record as Midwest Drought Scorches Crop

Crop prices surged in Chicago, lifting soybeans to a record, as the worst U.S. drought since 1956 scorched fields and raised chances of higher food prices.

Soybeans reached $16.5125 a bushel today on the Chicago Board of Trade, surpassing the previous peak of $16.3675 on July 3, 2008. Corn rallied to the highest since 2008 and came within 1 percent of its all-time record, while wheat surged above $9 a bushel to the highest in almost four years.

The U.S. has declared almost 1,300 counties in 29 states as natural-disaster areas because of drought. Corn and soybean fields are in the worst shape since 1988, when drought slashed U.S. corn output by 31 percent, Department of Agriculture data show. The USDA cut its estimate for this year’s corn crop by 12 percent on July 11, saying production may reach 12.97 billion bushels. The agency had projected record output of 14.79 billion bushels in June.

“There is not going to be enough supply to go around,” said Richard Feltes, vice president of research at R.J. O’Brien & Associates in Chicago. “The U.S. drought is laying the groundwork for higher food inflation into 2013.”

Soybeans for November delivery rose 1.7 percent to $16.48 a bushel by 7 a.m. on the CBOT. The oilseed jumped 36 percent this year as U.S. harvest concerns followed a drought that slashed the past season’s production in Brazil and Argentina.

Corn for December delivery rallied 1.3 percent to $7.945 a bushel after touching $7.98. The record for a most-active contract is $7.9925. Corn has surged 57 percent since mid-June. Futures for September delivery, the contract closest to expiration, rose as high as $8.115 today.

Crops Outperform

Wheat, soybeans and corn are the best-performing commodities in the Standard & Poor’s GSCI Index (MXWD) of 24 raw materials. The GSCI’s Agriculture Index is up 20 percent this year, while the MSCI All-Country World Index of equities rose 5 percent.

Surging grain and soybean prices may spur a “third wave” of food inflation following global price shocks that incited civil unrest in developing countries in 2008 and 2011, Barclays Plc said yesterday in a report. Global food prices tracked by the United Nations are down 15 percent from a record reached in February 2011 and 10 percent below a high set in June 2008.

“The situation has gone from tranquil a few weeks ago to relatively worrying,” said Abdolreza Abbassian, an economist in Rome at the UN’s Food & Agriculture Organization, who expects the drought to spark a rebound in global food prices. “Now the situation is getting to be pretty critical. Obviously it’s not going to be a relaxing summer.”

Extreme Drought

More than half of the U.S., excluding Alaska and Hawaii, was in moderate to extreme drought at the end of June, the highest percentage since December 1956, according to the National Climatic Data Center. The drought in the Midwest may persist for the rest of the growing season, USDA meteorologist Brad Rippey said yesterday.

While an inch (2.5 centimeters) of rain may fall today in areas of southern Wisconsin, northeast Illinois and northern Indiana, “the balance of the Midwest region will see little, if any relief, from the unending drought/heat pattern during the next 10 days,” Telvent DTN said today in a report.

Wheat for September delivery climbed 1.6 percent to $9.175 a bushel after touching $9.2125, the highest since August 2008. In Paris, November-delivery milling wheat jumped 3.1 percent to 269.75 euros ($331.60) a ton on NYSE Liffe after reaching 271.25 euros, the highest since May 2011.

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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