The grains rally struggled for traction despite the US
slashing forecasts for its corn and soybean crops by more than investors had
expected, blaming "persistent and extreme June dryness".
The US Department of Agriculture ditched ideas of the US
corn yield of 166 bushels an acre, cutting its forecast instead to a nine-year
low of 146 bushels per acre, "reflecting the rapid decline in crop conditions
since early June, and the latest weather data".
"Persistent and extreme June dryness across the central and
eastern Corn Belt and extreme late June and early July heat from the central
Plains to the Ohio River Valley have substantially lowered yield prospects across
most of the major growing regions," Joe Glauber, acting US agriculture secretary,
Major corn growing regions had witnessed "scarce rainfall coupled
with record-breaking temperatures", creating "unfavourable growing conditions"
evident in reports of rootless corn syndrome in Missouri, and wilted leaves in
Iowa, the top corn and soybean producing state.
The conditions had dashed hopes of a bumper soybean yield of
43.9 bushels per acre too, with the estimate cut to 40.5 bushels per acre.
"The drop reflects sharply declining crop conditions
resulting from limited rainfall since early April coupled with excessive heat
across much of the producing area in late June and early July," said Mr
Glauber, who a month ago cautioned investors against losing hope too early on dryness-hit
The cut increased further fears for US soybean supplies which
users have been banking on to tide them over, following a disappointing South
Indeed, the USDA cut its estimates for domestic consumption
of the oilseed, exports, and stocks on top, which were pegged closing 2012-13 at
At the equivalent to 4.2% of consumption, this took supplies
to their thinnest in nearly 50 years, implying buyers will need to pay up to
The USDA lifted by $1 a bushel to $13.00-15.00 a bushel its
forecast for the prices that US soybean farmers will receive for their 2012
For corn growers, the upgrade in the farmgate price estimate
was even more dramatic – from $4.20-$5.00 a bushel to $5.40-6.40 a bushel,
reflecting the price rationing that will need to take place to accommodate a
The corn harvest estimate was slashed by more than 1.7bn
bushels (45.2m tonnes) to 13.9bn bushels (329.5m tonnes) – a downgrade bigger
than the combined 2011-12 exports of Ukraine, Argentina and Brazil, the world's
second, third and fourth-ranked exporters.
Ethanol plants, importers and livestock feeders were seen
sharing the pain of lower supplies, although US export hopes for wheat, an
alternative grain for some users, were nudged higher.
Wheat farmers were seen benefiting from the raised corn
price too, with the average farmgate price pegged at $6.20-7.40 a bushel, an
upgrade of $0.60 a bushel.
'$1 a bushel too high'
However, on futures markets, which have already priced in
significant crop damage, futures, while managing an early spike, held on to
only limited gains.
Indeed, the farmgate prices outlined by the USDA suggested
investors may already have raised futures too high, some investors said.
"If you believe the USDA - they are the boss - we are at
least $1.00 a bushel too high on corn," US Commodities said.
"The government is also indicating soybeans are too high by
at least $1.00 a bushel."
Chicago corn for December stood 0.9% higher at $7.24 a
bushel in late morning deals in Chicago, off a high of $7.48 a bushel.
November soybeans were up 1.0% at $15.53 ¾ a bushel, having
touched $15.75 a bushel at their intraday high.
In fact, wheat was the top performer, up 1.7% at $8.35 ½ a
bushel in Chicago for September delivery, after the USDA cut its estimate for
world production in 2012-13 by a net 6.7m tonnes to 665.3m tonnes.
"Russia production is lowered 4.0m tonnes, with lower
expected yields for winter wheat and lower area and yield prospects for spring
wheat," Mr Glauber said.
"Kazakhstan production is lowered 2.0m tonnes as persistent
June heat and dryness have also reduced production prospects," with a
2.0m-tonne downgrade to the Chinese crop too.