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Crop Prices Probably Peaked After Drought Cuts U.S. Output

Crop Prices Probably Peaked After Drought Cuts U.S. Output
Employee Phil Swanson takes a sample of corn for moisture testing as it is unloaded at the Atherton Grain Co. Inc. elevator in Normandy, Illinois, on Sept. 12, 2012. Photographer: Daniel Acker/Bloomberg

Rallies in corn, wheat and soybeans because of drought in the U.S., the top grains shipper, are probably over and it would need worsening weather elsewhere to push up futures, said Macquarie Agricultural Funds Management.

“Prices of grains and soybeans may have already peaked as the news around the drought in the U.S., as well the weather in FSU and Australia is pretty well priced in,” said Tim Hornibrook, an executive director, referring to the former Soviet Union. The fund manages 3.2 million hectares (7.9 million acres) of farmland, about the size of Egypt’s agricultural area.

Futures have retreated on signs of slowing demand after corn reached a record in August and soybeans touched an all-time high this month. Global demand for corn will drop 0.9 percent in the 2012-2013 marketing year, the first decline in 17 years, even as U.S. farmers collect the smallest crop in six years, according to the U.S. Department of Agriculture. An end to the rally may ease concern about rising food prices as governments around the world struggle with slowing growth.

Meat producers are slaughtering animals to contain feed costs, while ethanol makers are cutting output, Sydney-based Hornibrook said in a Sept. 19 interview.

Corn has tumbled 12 percent from a record $8.49 a bushel on the Chicago Board of Trade and soybeans are down 9.2 percent from a high of $17.89 a bushel. Corn is up 16 percent this year at $7.505 and soybeans have jumped 34 percent to $16.2425.

Farmer Response

In Brazil, the third-largest corn grower, high prices encouraged farmers to expand planting, according to the United Nations’ Food & Agriculture Organization. That may boost the country’s harvest by 29 percent to a record 72.8 million metric tons this year from 56.3 million tons in 2011, the FAO said Sept. 19. South America, the largest soybean producing region, will probably produce a record 148.5 million tons in 2012-2013, up from 115.5 million tons a year earlier, the USDA estimates.

A “supply-side interruption” including worsening weather outside the U.S. could send prices of grains and oilseeds higher, said Hornibrook. “South America won’t have adequate soybean supplies to sell to China until March 2013 at the earliest.” China is forecast to account for 65 percent of global soybean imports in 2012-2013, said the USDA. Soybean stockpiles in China are estimated by the agency to fall to 11.7 million tons by September 2013, the smallest in four years.

Macquarie manages acres used for grains, oilseeds and livestock in Australia and Brazil, Hornibrook said. The area of 3.2 million hectares compares with Egypt’s total agricultural land of 3.5 million hectares, including 1 million of reclaimed land, according to the FAO data.

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