Goldman leads cautions over US corn crop estimates

Commentators from Goldman Sachs to the University of Illinois cautioned that, thanks to elevated levels of crop abandonment, the official forecast for the US corn harvest may still prove too high even after a downgrade of 2.2bn bushels.

The US Department of Agriculture on Friday surprised investors by cutting its forecast for the domestic corn yield this year by more than 20 bushels per acre to 123.4 bushels per acre, citing damage from the worst US drought in more than 50 years.

With the estimate for acres abandoned raised too, the forecast for the harvest was slashed to 10.8bn bushels.

However, while many analysts believe that the new estimate for the US corn yield is realistic the upgrade to 9.3%, from 7.8%, in the forecast for acres not making it to harvest was viewed by many commentators as not going far enough.

In 1988, the last year when crops were hit by severe drought, the rate of abandonment reached 14%. The average rate, over the past three years, is 8.1%.

'Harvested acres too high'

At broker Country Futures, Darrell Holaday said: "We do feel that their harvested acres are too high and they will eventually move that number lower.

"We feel the harvested acreage decrease alone will pull at least another 200m bushels off the total production" estimate for corn.

University of Illinois academic Darrel Good flagged "some chance" that USDA forecasts for both corn yield and acreage harvested "will decline in subsequent reports".

Macquarie said that the USDA "did take a relatively conservative view on abandonment though, only increasing it to 9.4%. We believe abandonment will likely be closer to 1988 levels."

Goldman Sachs forecast the rate of abandonment climbing to 11.5%, although the bank stuck with a higher yield estimate than the USDA, at 126.0 bushels per acre.

"We maintain our US crop production forecast for now," of 10.75bn bushels, "but continue to see risks skewed towards even lower production."

'Prices to rise'

The idea of lower output forecasts yet to come from the USDA supported thoughts of further price rises ahead, even as futures eased on Monday.

Goldman Sachs said that expected "corn prices to rally to secure sufficient ethanol demand destruction", a forecast which assumed Chicago's front-month futures contract standing at $9.00 per bushel in three months' time.

Professor Good, at the University of Illinois, said that the revised USDA estimates "confirmed that substantial rationing of corn and soybeans will be required in the year ahead, suggesting that prices will remain strong for an extended period to ensure the necessary rationing occurs.

"New highs in both corn and soybean prices cannot be ruled out."

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