Chicago corn prices experienced their biggest two-day drop on record, tumbling 12.6 percent, or 93 cents, as larger-than-expected U.S. stockpiles weighed on the market, causing hedge funds to sell heavily.
Despite the rain from November to January, the American cultures should still undergo a major water deficit in 2013. The drought of 2012, the worst in the last fifty years, has resulted in the soil drying out which is difficult for the farmers to manage.
According to the Palmer Drought Index, 56% of the U.S. are still in drought at the end of February, mainly in the High Plains region. Kansas, the largest producer of wheat in the United States, but also Nebraska, Oklahoma and South Dakota are in extreme drought according to the latest report from the U.S. Drought Monitor.
In 2012, corn prices skyrocketed, demand remained high, making the 2012 crop the most valuable ever produced. What will happen next? Will the drought that impacted several countries and especially the United States continue in 2013?
The US corn production could reach 366.6 million tonnes 2013-2014, the U.S. Department of Agriculture believes. This is 53 million tons more than in 2012-2013. The USDA revised its long-term forecast model to include the 2012 drought in its 25-year average. Forecasters expect the area sown for all types of cereals to be 102.6 million hectares in 2013-2014, but to decline over the next three years for corn. Specifically for corn, the USDA expects 38.78 million hectares in 2013, and 36.3 million hectares in 2014 (vs. 39 million hectares in 2012).
Soybeans tumbled to a four-month low and wheat fell the most in a month after the U.S. raised its estimates for crop inventory including corn, easing concern over tight supplies following the worst drought since 1956.
Soybean futures for January delivery fell 3 percent to close at $14.5125 a bushel at 2 p.m. on the Chicago Board of Trade. Earlier, the oilseed touched $14.49, the lowest for a most-active contract since July 3. On Sept. 4, the price rose to a record $17.89.
Wheat futures for December delivery dropped 1.7 percent to $8.865 a bushel, the biggest decline since Oct. 12. The price has surged 36 percent this year. On July 23, the grain reached $9.4725, the highest since August 2008.
Corn production is forecast at 10.7 billion bushels, down slightly from the September forecast and down 13 percent from 2011. This represents the lowest production in the United States since 2006. Based on conditions as of October 1, yields are expected to average 122.0 bushels per acre, down 0.8 bushel from the September forecast and 25.2 bushels below the 2011 average. If realized, this will be the lowest average yield since 1995. Area harvested for grain is forecast at 87.7 million acres, up less than 1 percent from the September forecast and up 4 percent from 2011. Acreage updates were made in several States based on administrative data.
Corn supply hit its lowest in eight years as the USDA reported in the Grain Stocks Report and Small Grains Summary Report , signaling stronger demand for the grain. So, Corn prices surged the most in three months.
Corn Stocks Down 12 Percent from September 2011
Old crop corn stocks in all positions on September 1, 2012 totaled 988 million bushels, down 12 percent from September 1, 2011. Of the total stocks, 314 million bushels are stored on farms, down slightly from a year earlier. Off-farm stocks, at 675 million bushels, are down 17 percent from a year ago. The June – August 2012 indicated disappearance is 2.16 billion bushels, compared with 2.54 billion bushels during the same period last year.
Corn, wheat and soybeans prices might have peaked after this summer drought in the US according to Macquarie Agricultural Funds Management, and it would take worsening weather elsewhere to push up futures.
Corn is still up 16 percent this year at $7.505 but has tumbled 12 percent from a record $8.49 a bushel on the Chicago Board of Trade and soybeans have jumped 34 percent to $16.24 but are now down 9.2 percent from a high of $17.89 a bushel.
According to FAO, global food prices have bounced back by 6% in July after several months of decline. This increase is mainly due to soaring prices for cereals and sugar: over 17% for cereals and 12% for sugar. The FAO food price index has rebounded significantly in July to 213 points vs. 201 in June.
The Rome-based institution said in a statement that the increase was mainly due to a jump in prices for cereals and sugar, and more moderate increases of oils and fats. International prices of meat and dairy products remained more or less unchanged. If this trend continues, the February 2011 peak of 238 points that started in July 2010 could be rapidly reached. It could be similar since in both cases, soaring grain prices were the original trigger.
“The damage has been done to the corn crop,” Peter Meyer, a senior director of agriculture commodities at PIRA Energy Group in New York, said by telephone today. “Now the weather is starting to become more of a factor in the soybean markets.”
The condition of the U.S. corn crop worsened for an eighth straight week amid the worst Midwest drought in a generation. The worst of the drought occurred when corn plants were going through the critical pollination stage last month. Soybeans, which normally are planted later in the Midwest, are just now entering reproductive stages, so they have more time to grow.
In normal times, it’s said that up to 40% of the US corn crop is converted into ethanol which is then fed into cars. When the crop slumps this proportion is likely to rise. For a drought and a shortage of corn is not going to do much to change driving habits.