Surprise Record-High U.S. Crop Estimates Spur Price Gyrations

  • Corn, soybean futures tumble, then recover as demand weighed
  • Extended slump by top two crops signal ‘subdued’ farm income

U.S. corn and soybeans crops are heading for record highs again, threatening to erode farmer income further and hamper agriculture credit conditions.

The U.S. Department of Agriculture said Friday in its monthly World Agricultural Supply and Demand Estimates, or WASDE, report that corn output will rise 11 percent this season from a year earlier, while soybean production will increase 3.3 percent, topping projections by analysts. That quickly sent corn futures to the lowest since October 2014 and soybeans down more than 2 percent. Investors reconsidered demand prospects later in the session, and prices bounced higher.

Corn, the biggest U.S. crop, is heading for the fourth straight annual price decline. In reports this week, Federal Reserve banks in Chicago, St. Louis and Kansas City signaled a dim outlook for a bottom to the slumping agriculture economy. Low commodity prices have “subdued” farm profits, worsened agricultural credit conditions and weakened farmland values, the Kansas City Fed said.

“This is one of the most bearish crop-production estimates for the U.S. we have seen in a while for a USDA August report,” Terry Reilly, senior commodity analyst at Chicago-based Futures International LLC, said in a note. “Traders seen to have already worked in the large production figures. We look for volatility to continue to fall over the next week.”

Corn Bounce

After the WASDE report at 11 a.m. local time, corn futures for December delivery on the Chicago Board of Trade fell as much as 2.8 percent to $3.225 a bushel, the lowest for a most-active contract since Oct. 3, 2014. The price rallied late in the session to close at $3.33, up 0.4 percent. This year, the grain has dropped 7.2 percent.

Soybean futures for November fell as much as 2.2 percent following the USDA report. The price closed down 0.2 percent at $9.8175 a bushel. This year, the oilseed has climbed 14 percent, partly on robust demand for U.S. exports.

Alongside the bearish crop-supply data, the USDA published some bullish demand figures. U.S. beef, pork and poultry production will rise 2.8 percent in 2017, and milk output will climb 1.7 percent, the government said. The livestock industry is one of the biggest consumers of grain and oilseeds for animal feed.

“Demand is really quite strong right here,” Ted Seifried, chief market strategist at Chicago-based Zaner Group LLC, said in a phone interview. “We’ve got big production numbers, but big demand numbers.”

WASDE Outlook

Corn production will jump to 15.153 billion bushels this season, and soybean output will climb to 4.06 billion, the USDA said. Both forecasts surpassed the highest estimates by analysts in Bloomberg surveys.

The U.S. is the world’s largest grower of both crops. The latest production estimates are the first of the season that the USDA compiled based on a survey of field samples and farmer interviews.

Wheat futures for December delivery rose 0.7 percent to $4.40 a bushel. Earlier, the contract, which debuted in July 2014, touched a record low of $4.2525.

“Today’s upward reversal from sharp losses in the face of bearish news suggests the market is having trouble finding new sellers for now,” Dave Marshall, a farm-marketing adviser at First Choice Commodities LLC in Nashville, Illinois, said in a note. “Corn and wheat remain near decade lows: not a place for high-reward sales by either farmers or speculators.”

In 2016, wheat has dropped 6.4 percent, based on the most-active futures contract by open interest. The price fell in the previous three years.

On Friday, Deere & Co., the world’s biggest agricultural machinery maker, and Monsanto Co, the largest seed producer, fell on the New York Stock Exchange.

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