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Drought Cuts U.S. Crops Below Demand First Time in 38 Years

By Jeff Wilson – Oct. 10 (Bloomberg) — Drought damage to corn and soybean fields in the U.S., the world’s top grower and exporter, is eroding supplies of the nation’s two largest crops to below year-earlier consumption levels for the first time since 1974.

The government probably will say tomorrow that the U.S. corn harvest and inventories on Sept. 1 will be a combined 11.604 billion bushels, less than the 12.33 billion consumed and exported last year, according to a Bloomberg survey of 31 analysts. Soybean supplies will be 2.932 billion bushels, below the 3.157 billion used in 2011. Supplies failed to top usage from the previous year only twice since 1960 for corn and five times for soybeans, U.S. Department of Agriculture data show.

Record heat in June and July sparked the worst drought since 1956, sending corn and soybeans prices to record highs. Morgan Stanley predicted corn may rally 35 percent in a year, while Barclays Plc sees soybeans gaining 16 percent. Higher costs for dairies, grain processors and livestock producers helped send global food prices in September to the highest since March, United Nations data show.

“Supplies of both corn and soybeans will be tight, and we expect prices to rebound after the report,” said Bill Tierney, the chief economist for Chicago-based AgResource Co. and a former USDA grain analyst. “There is no evidence that current prices are rationing soybean supplies, and there will be less supply relief for corn” from South American harvests that start in February, he said.

Corn futures have jumped 15 percent this year to $7.415 a bushel on the Chicago Board of Trade, and soybeans surged 28 percent to $15.425 a bushel. The 24 commodities tracked by the Standard & Poor’s GSCI Spot Index rose 3.2 percent in the period, led by wheat’s gain of 33 percent. The MSCI All-Country World Index of equities climbed 11 percent, and Treasuries returned 1.9 percent, a Bank of America Corp. index shows.

Cutting Forecast

In its report tomorrow at 8:30 a.m. in Washington, the USDA probably will cut its domestic corn-production forecast to a nine-year low of 10.616 billion bushels, down 1 percent from 10.727 billion estimated in September and the fourth straight monthly reduction, according to the average of estimates in the Bloomberg survey. As recently as June, the government predicted a record harvest of 14.79 billion bushels.

Combined with the government’s Sept. 1 estimate of reserves at 988 million bushels, total U.S. supply will 6.3 percent below estimated consumption last year. Inventories before next year’s harvest may fall to 656 million bushels, the lowest since 1996, a Bloomberg survey showed.

About 25 percent of the corn crop was in good or excellent condition as of Sept. 30, compared with a five-year average of 52 percent, USDA data show. The dry weather also sped up the harvest, which was 69 percent complete as of Oct. 7, compared with a five-year average of 28 percent.

Tighter Supplies

Plunging output in the U.S. is expected to erode global corn reserves before the Northern Hemisphere harvest to the lowest since 2007, a separate Bloomberg survey showed. The average U.S. cash price was $7.3027 on Oct. 8, 26 percent higher than a year earlier, boosting costs for meat companies including Sanderson Farms Inc. and ethanol makers including Valero Energy Corp.

Prices have dropped from the record of $8.49 on Aug. 10, as exports slowed and farmers increased sales from newly-harvested fields. Corn futures for December delivery touched $7.05 on Sept. 28, the lowest since July 12. Soybean futures that reached an all-time high of $17.89 on Sept. 4 slipped as low as $15.04 on Oct. 3.

Premiums Rise

There are still signs that farmers will store more of their remaining supply in a bet prices will increase. Premiums paid on Oct. 9 above Chicago futures for corn delivered to export terminals near New Orleans and in Decatur, Illinois, were the highest since at least 2008, a sign that grain merchants are increasing inventories from this year’s harvest, said Tim Emslie, the research manager for Country Hedging Inc. in Inver Grove Heights, Minnesota.

“The cash markets are already reflecting tightening supplies and will lead the rally to slow usage,” said Emslie, who predicted corn would reach $8.50 in the next six months.

Corn, the primary source of livestock feed in the U.S., may reach $10 before this time next year because cattle and hog producers may not have culled herds even as feed costs rose, Hussein Allidina, head of commodities research at Morgan Stanley, said Oct. 3 in an interview at Bloomberg News offices in London.

With the drop in prices during the past two weeks, cattle and hog producers could have bought corn and sold livestock futures to lock in small profits, the Chicago-based Linn Group said in a report Oct. 5.

Feed Use

Domestic feed, food and fuel production will account for almost 89 percent of total usage, the highest in 40 years, USDA data show. Corn exports by the U.S. may fall to the lowest since 1975 as overseas buyers shift to other grains and suppliers, the government estimates. World inventories as a percentage of use before next year’s harvest will drop to the lowest since 1974, government data show.

“Exports are less important for corn prices than the demand for feed and ethanol,” AgResource’s Tierney said. Soybean farmers may see a smaller reduction in their harvest than the USDA predicted last month, after August rain improved yields. Production may be 2.763 billion bushels, or 4.9 percent more than the 2.634 billion estimated a month earlier, the Bloomberg survey of analysts showed. That’s still below the 2011 harvest of 3.093 billion.

Rising export demand will erode reserves before next year’s harvest to 135 million bushels, down from the 169 million the USDA estimated for Sept. 1, the survey showed.

Rising Exports

U.S. exporters sold 1.297 million metric tons of soybeans in the week ended Sept. 27, the most since Nov. 25, 2010, the USDA said Oct. 4. Sales commitments for delivery before Aug. 31 rose to 23.47 million tons, 40 percent higher than a year earlier and equal to 82 percent of what the government forecast last month for the marketing year, USDA data show.

Sales of soy-based animal feed for delivery in the year that began Oct. 1 rose 54 percent to 2.53 million tons from 1.64 million a year earlier, the USDA said last week. Last month, the government said reduced production would cut U.S. exports 28 percent this year and soymeal sales by 17 percent.

“USDA export projections are too low, and possibly significantly too low,” said Randy Mittelstaedt, the director of research at R.J. O’Brien & Associates in Chicago. “Demand is not slowing, and any increase in production will be offset by an increase in export projections.” He predicted soybeans will rise to a record.

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–Editors: Steve Stroth, Patrick McKiernan

To contact the reporter on this story:

Jeff Wilson in Chicago at +1-312-443-5938 or

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Posted by on October 10, 2012 in Agriculture, Water


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Biofuels Industry under scrutiny amidst drought

U.S. corn is suffering under historic drought conditions, causing crop yield projections to drop over the past two months. As result, corn prices have increased by more than 50 percent since the first quarter of 2012.

As the largest global producer and exporter of corn, the United States is under domestic and international pressure to keep prices as low as possible. Though the drought is the primary cause of the recent price increases, growing biofuel production spurred in part by U.S. government mandates over the past decade has also heightened demand for corn, adding upward pressure on prices. Even if these mandates were to be removed, however, prices would not necessarily decrease since ethanol production is only one of many factors influencing the commodity.

Analysis by Stratfor (click here to visit their excellent website)

Field corn accounts for the vast majority of the crop produced in the United States, and the starch derived from it can be used as the feedstock, or starting material, for ethanol production. By contrast, sweet corn, the kind most often used in canned or frozen foods or eaten fresh, accounts for less than 1 percent of total U.S. corn production. More than one-third of the country’s field corn gets used to make ethanol, with the rest used as livestock feed or as a base in a variety of foods such as corn syrup and flour.

Ethanol production began to increase significantly in the early 2000s after becoming a popular gasoline blending component used to increase octane levels and meet Read the rest of this entry »


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Global Food Commodity Update


Corn, soybeans, rice and wheat are the most important food staples consumed in the world. We monitor these commodities because market fluctuations can lead to both trading and investment opportunities as well as domestic unrest in import-reliant countries. Below is an assessment of these vital commodities.


Most countries have domestic agricultural industries. However, the majority of these countries do not produce more than what their populations can consume. Only a handful of countries are able to export significant quantities of key food staples to countries that cannot meet their consumption needs or experience temporary setbacks in their agricultural sectors.

Output from exporting countries is an important geopolitical issue. Increased demand for global food supplies can cause localized shortages and price spikes. Food shortages and price increases, in turn, can lead to political turmoil and social unrest in countries whose populations depend on these imports for survival.

The most important staple crops consumed by populations around the world are corn, rice and wheat. Soybeans have also become an important alternative source of protein, particularly in Asian diets. Corn and soybean exports are largely dominated by states in the Western Hemisphere, while global wheat supplies are primarily grown by states in the Northern Hemisphere. Asian states account for the majority of all globally traded rice, but China, the world’s largest producer of rice, consumes almost all of the rice it produces.

The following breaks down the current status of each of the four major staple crops. Production forecasts are drawn primarily from the U.S. Department of Agriculture’s Foreign Agriculture Service estimates.


The United States, Brazil, Argentina and Ukraine account for more than 80 percent of global corn exports. While some 90 countries rank among the world’s corn importers, Japan, Mexico, South Korea and Egypt are the most import-dependent nations, purchasing more than 40 percent of all globally traded corn.

The status of the corn market depends on weather conditions in the four major exporting countries. For the United States and Ukraine, the fall corn harvest has already occurred. While U.S. production fell by only 1 percent, the country’s total exports are expected to shrink by 10 percent. Ukraine, however, nearly doubled production and more than doubled exports as a result of a record-breaking harvest.

For Brazil and northern Argentina, the period from December to February is key. It is during these summer months that corn goes through its silking and filling stages. A severe drought is currently affecting the region, and the extent to which the corn crop will be affected is not yet clear. Estimates of Argentina’s production have fallen by 10 percent, but the country is still projected to produce more corn this season than in each of the previous two seasons. (The most recent drought in Argentina occurred in the 2008-2009 season, during which corn production fell by about 30 percent.) Although the ongoing drought also affects Brazil, Brazilian corn output is expected to increase by several percentage points compared to 2011.

Assuming current expectations hold, Argentine and Brazilian production will reach a combined output of 87 million metric tons. Since global corn production is expected to rise by several percentage points in the 2011-2012 season, Brazil and Argentina would have to lose nearly 50 percent of their expected corn crop for global production to fall below the 2010-2011 seasonal output.


The popularity of soybeans is growing. While less soy is produced than the other three food staples, soybean production has increased by nearly 150 percent in the past two decades, nearly twice the rate of corn production. The United States is a major producer and exporter of soybeans, but the fastest growth has occurred in Brazil. Indeed, there is growing domestic and foreign investment into the South American soybean industry, particularly in the Mercosur countries — Brazil, Uruguay, Paraguay and Argentina.

Outlook for U.S. Agricultural Trade

The rising popularity of soy can be attributed to its being a relatively cheap source of protein for humans and livestock. Most soybeans are consumed in Asia’s rapidly growing markets. China consumes more soy than any other nation. It imports more than 60 percent of globally traded soy, which represents more than 80 percent of China’s total annual supply. To mitigate the risk posed by a sudden disruption in the soy trade, China stockpiles its soybeans for later consumption.

The drought that is affecting corn production in Brazil and Argentina is also expected to affect soybean production as the season progresses. Projected output for Argentina this season has dropped by nearly 3 percent, but the country still expects a slight increase in production compared to the previous season. Brazil will not be as lucky. The above-average rainfall seen in soybean-producing center-west states, such as Mato Grosso, will not further compensate for the drought in Parana state. As such, soybean production in Brazil will decrease by 2 percent. This will contribute to a 3 percent decline of global soybean production. Despite this decline, Brazil is expected to become the world’s largest exporter of soybeans in the 2011-2012 season following an 8 percent dip in U.S. production.


The two largest rice producers by far are India and China. The two countries collectively produce more than half of the world’s rice. Much of this rice is consumed domestically, however, and only India is a significant net exporter. Controlling nearly 80 percent of global rice exports, the top exporters of rice in order of rank are Thailand, Vietnam, India, Pakistan and the United States.

The rice market is temperamental, easily thrown off by too little or too much rainfall. The majority of rice produced in the world is consumed in the country of production; only about 7 percent of the world’s rice production is available on global markets. Comparatively, 11 percent of corn produced is available on global markets, 20 percent of wheat and 37 percent of soy. This makes rice the most easily destabilized of the four key staples.

The 2011-2012 season has been more stable than the previous year, despite the flooding in Southeast Asia and the drought in China during 2011, and global production rose by just over 2 percent. With a 30 percent uptick in production over the previous year and an expected 17 percent increase in exports, Pakistan was the only top-five net exporter to have a noteworthy season.


Wheat is widely produced by countries all over the world. However, more than 90 percent of the export market is dominated by ten entities: the United States, Australia, Russia, Canada, the European Union, Argentina, Kazakhstan, Ukraine, Turkey and Uruguay. China is by far the largest producer of wheat, accounting for about 17 percent of global production (only the states of the European Union collectively produce more). However, China is not a major player in the global market because it consumes almost all it produces. Because most wheat is grown in the Northern Hemisphere, July and August are critical for adequate rainfall.

The current season’s total wheat production is estimated to be up 6 percent from the previous season. The only major decline was in the United States, which saw a 10 percent drop from the previous season. Both Kazakhstan and Russia have had stellar years for wheat. Russian production increased from the previous year by more than 30 percent. Kazakhstan had its highest production in 30 years, representing a 132 percent increase over the 2010-2011 season and an expected export increase of more than 50 percent.



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Supply shock in agri commodities

Corn’s explosive takeover, mighty Chinese soybean demand and a weak dollar cause crisis for other crops

From the Deep South to near the Canadian border, farmers have heard the piercing call of corn and responded by abandoning centuries-old acreage practices. Farmers, economists and industry officials alike predict that things might never go back to the way they were. The result: shock in the supply chain for the crops that corn has replaced.

The shock reverberates from the long-tested laws of supply, demand and price. In the case of corn, it’s fast-paced demand from ethanol that’s now soaking up 40% of the crop. And it’s not only a corn story. The burgeoning Chinese demand for soybeans also plays a role.

Yet even more is involved than just demand, because an increasingly weak U.S. dollar has also been a major player in making U.S. crops more competitive than those raised in other countries.

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Posted by on September 6, 2011 in Agriculture


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Argentina’s farmers to suspend grain and soya sales

Amid growing worries over a global food price shock, today’s news from Argentina doesn’t bode well: farmers have said they’ll suspend the sale of all grains and oilseeds for a week from next Monday.

The announcement came after talks broke down between the four main farmers’ organisations and the government over how much wheat producers should be allowed to export.

The farmers’ leaders left the meeting visibly angry. Their chief spokesman, Hugo Biolcati, told Argentine television that they were hearing more of the same from the government. “They haven’t listened to what we’ve been asking for,” he said. The minister for agriculture, Julián Domínguez, said that farmers would have to “explain themselves to Argentine society.”

The Argentine government has announced that it will allow the export of up to 8m of the 14m tonnes of wheat expected to be produced this year. The farmers want to be able to export more, saying that prices have collapsed and it’s become difficult to find buyers for their produce.

Argentina is one of the world’s leading exporters of grain, with more than 16 per cent of the world market, and the second-largest exporter of oilseeds, mostly soya and sunflower.

A large part of the government’s income is raised from taxes levied on agricultural exports, especially the fast-growing soya industry.

The breakdown in talks heralds the end of an uneasy peace that has existed between the two sides since a bitter conflict in 2008 over taxes levied on soya exports.

That led to farmers blocking roads, food shortages in Argentina’s major cities, a drastic fall in exports and a subsequent price rise on world grain markets

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Posted by on January 12, 2011 in Agriculture


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