The hottest, driest summer since 1936 in the Midwest eroded yield prospects for corn and soybean crops in the U.S. for a third year to the lowest since 2003.
Prospects of lower output were confirmed this week during a four-day, seven-state sampling of about 2,400 fields in the Midwest organized by the Professional Farmers of America newsletter, which will report its findings later today. A Bloomberg survey of 14 tour participants showed 13 expected the government to cut its corn-harvest forecast and 12 predicted a reduction for soybeans.
Corn has jumped 62 percent since June 15 and soybeans gained 32 percent. Both reached records this month after July was the third warmest in 117 years across the seven major producing states and the past two months were the third driest since 1895, according to government data. Corn, the biggest U.S. crop, is the main ingredient in livestock feed and ethanol, a gasoline additive.
“Corn was the story going into the crop tour and now soybeans are the story after leaving the fields this week,” Peter Meyer, a senior director of agriculture commodities at PIRA Energy Group in New York, said in an interview in Owatonna, Minnesota, after completing his sixth Pro Farmer tour. “Mother Nature shut down the soybean crop well before it reached its potential. The U.S. may run out of soybeans before the start of the South America harvests in February.”
Corn futures for delivery in December on the Chicago Board of Trade rose 0.8 percent to $8.21 a bushel and soybeans for November delivery gained 1.1 percent to $17.335 a bushel at 2:42 p.m. in Tokyo.
Meyer, who correctly forecast a smaller corn crop and rising prices after the past two tours, said corn production may fall 6.1 percent below the government’s estimate and soy may drop 5.3 percent.
The more than 120 farmers, hedge fund and bank analysts, grain buyers and agronomists who took field samples on this year’s tour reported larger estimated declines in corn yields than the government said earlier this month in Nebraska, Minnesota, Ohio and South Dakota. Soybean-pod counts were also smaller in all those states and Iowa, the biggest oilseed grower.
The U.S. Department of Agriculture said Aug. 10 that corn production may total 10.779 billion bushels, 13 percent smaller than last year after farmers planted the most acres since 1937. The soybean harvest may fall 13 percent to 2.692 billion, the agency said earlier this month.
Smaller supplies of feed may increase costs for ethanol refiners such as Archer Daniels Midland Co. and Valero Energy Corp. and meat producers Tyson Foods Inc. and Smithfield Foods Inc., which buy the grain for feed. Cargill Inc. cited lower beef-profit margins as contributing to an 82 percent drop in quarterly earnings.
Reduced corn and soybean supplies are spurring farmers to shrink cattle and hog herds and slow chicken production in both the U.S. and South America, Christopher Narayanan, head of agricultural research for Societe Generale SA said in Owatonna, Minnesota after touring farms this week.
“The smaller crops mean short supplies of meat by next March or April,” Narayanan said. “The U.S. summer grilling season will be expensive in 2013.”
Corn kernel and soybean size is going to be a major issue for final yields, because the weather has reduced the ability of plants to move sugars, protein and starch into the grain and oilseeds, said Byron Jones, a 71-year-old farmer from Saybrook, Illinois, who participated in every tour since 1993.
“These are the worst crops I’ve ever seen in Illinois because the drought hurt the crops planted on the best soils,” said Jones, who has been farming since 1961. “The yield decline is not over yet because the crop is going to shrink more” from losses tied to weak stalks and a smaller kernel size, said Jones.
U.S. corn production will probably slide to 10.25 billion bushels, while soybean output may fall to 2.58 billion, according the average of 15 estimates from hedge fund traders, bank analysts, exporters and farmers on this year’s tour.
Crop prices have led gains this year on the Standard & Poor’s GSCI Index of 24 commodities after heat and drought threatened to cut global inventories already eroded by last season’s dry weather in South America.
Soybean production in Brazil and Argentina, the two biggest producers after the U.S., fell 14 percent earlier this year, according to USDA data. Farmers will begin planting corn and soybeans next month in South America.
China, the world’s largest buyer and consumer, purchased 165,000 metric tons of soybeans and 55,000 tons of soybean oil from the U.S., the USDA reported yesterday. China may import a record 59.5 million tons of soybeans in the year that begins Oct. 1, the agency said Aug. 10.
World soybean supplies may shrink by 33 million to 35 million tons in September to February, compared with a year earlier, forcing China to reduce imports by 4 million tons, researcher Oil World said Aug. 21.
Corn prices will probably need to rise to $9.50 and soybeans to $20 to slow demand, said Eduardo Rodriguez, vice president of sales at Fintec Group.
“We’ll see the peak of prices sometime between September and October once the harvest kicks in and you see that the yields confirm how severe the situation is,” in the U.S. Midwest, Rodriguez said.
To contact the editor responsible for this story: Steve Stroth at email@example.com.