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Corn Leads U.S. Crop Surge as Drought Seen Eroding Grain Output

Corn Leads U.S. Crop Surge as Drought Seen Eroding Grain Output
Corn prices through yesterday were up 61 percent since mid-June and soybeans rallied 20 percent, while the government rated the condition of the U.S. crop on Aug. 3 as the worst since 1988. Photographer: Victor J. Blue/Bloomberg

Corn surged to a record, leading rallies in soybeans and wheat, on mounting signs that the worst U.S. drought since 1956 will erode production from farmers that are the world’s largest exporters of the crops.

The U.S. Department of Agriculture, in a report tomorrow, probably will cut its domestic corn-crop forecast to 10.929 billion bushels, the smallest in six years, according to the average estimate of 29 analysts in a Bloomberg survey. That would be down 16 percent from a July forecast, the biggest August reduction since 1974. The estimate for soybeans may drop 8.3 percent to 2.796 billion bushels, the smallest since 2007.

Corn prices through yesterday were up 61 percent since mid-June and soybeans rallied 20 percent, while the government rated the condition of the U.S. crop on Aug. 3 as the worst since 1988. Output threats are being compounded by dry weather in Russia and below-average monsoon rains in India. Goldman Sachs Group Inc. is among the banks forecasting prices will keep rising, and the United Nations reported today the biggest gain in global food costs since 2009.

“This year’s crops are a disaster,” Dale Schultz, the buyer-relations manager for AgWest Commodities LLC in Holdrege, Nebraska, said in a telephone interview. “We have to raise prices and reduce demand immediately to prevent a real shortage developing in January or February. There is so much competition for every bushel of grain this year.”

Prices Rally

Corn futures for December delivery rose 1.3 percent to $8.2675 a bushel at 11:12 a.m. on the Chicago Board of Trade, after touching a record $8.2975. Prices have reached all-time highs four times in three weeks.

It may be too late for the corn crop to recover, Dennis Gartman, an economist, wrote today in his daily Gartman Letter. “What rains may develop in the next few weeks shall have little, if any, effect on the crop’s size” because plants are too mature to recoup yields, he said. Most of the fields will be harvested in September and October.

Soybean futures for November delivery rose 2.9 percent to $16.2675 a bushel, heading for the biggest gain since July 25. The most-active contract touched a record $16.915 on July 23. Wheat futures for December delivery advanced 1.5 percent to $9.2725 a bushel on the CBOT, heading for the third increase this week.

Crops are the best-performing commodities this year. Goldman, Macquarie Group Ltd. and Credit Suisse Group AG say prices will continue to rise. World cereal costs surged 17 percent in July, the most since February 2008, the same month wheat futures touched a record in Chicago, the UN’s Food & Agriculture Organization reported today.

Declining Conditions

About 69 percent of the Midwest, where U.S. farmers harvested 60 percent of last year’s crop, had moderate to exceptional drought conditions as of Aug. 7, the highest since the government-funded U.S. Drought Monitor in Lincoln, Nebraska, began tracking the data in 2000.

About 50 percent of the corn and 39 percent of soybeans in the U.S. were in poor or very poor condition as of Aug. 5, the worst for that date since at least 1988, government data show. The USDA reduced its outlook for domestic corn output by 12 percent on July 11, a month after predicting a record harvest. U.S. soybean production was cut 4.8 percent to the smallest crop in four years.

The world could face a food crisis of the kind seen in 2008 if countries restrict exports due to concerns about a drought-fueled grain price rally, the UN’s FAO said today, after reporting a 6.2 percent surge in global food prices last month.

Food-Price Riots

World food costs are still 10 percent lower than the record set in February 2011 and 4.9 percent below a previous peak in 2008, according to the UN agency. The U.S. State Department estimates that surging food prices triggered more than 60 riots worldwide from 2007 to 2009.

“The combination of rising prices and expected low reserves means the world is facing a double danger,” Colin Roche, a spokesman for humanitarian group Oxfam International, said today in a statement. “This is not some gentle monthly wake-up call. It’s the same global alarm that’s been screaming at us since 2008.”

Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, followed by soybeans at $35.8 billion, government figures show. Wheat is the fourth-largest at $14.4 billion, behind hay.

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