Larger US corn, soy area may not ease drought worry

Fri Jun 29, 2012
* Big US corn, soy area may buffer drought losses-Traders

* Smallest June 1 corn stockpile since 2004 expected

* Bad weather could bring third year of tight corn supply

* USDA to release stocks, planting data at 8:30 a.m. EDT
By Charles Abbott
WASHINGTON, June 29 (Reuters) - American farmers likely sowed far more soybean seeds than they had originally intended this year and planted the most corn acreage in 75 years, the U.S. government is expected to say on Friday in a report that has been overshadowed by a deepening drought in the Midwest.

The U.S. Agriculture Department's acreage and quarterly stockpile reports, normally among the most important of the year for estimating supplies from the world's top grower, may be set aside by traders who fear that intense heat and a lack of rain is damaging corn stalks every day. Those conditions also may have dissuaded some farmers from planting soybeans on recently harvested wheat fields.

Farmers likely decided to plant much more of all three major crops than initially estimated in the USDA's March survey, while corn stocks likely shrank by the fewest bushels in three years, according to a survey of analysts. Under normal conditions, the largest corn sowing since 1937 would produce a record crop, ending two years of tight supplies.

But the sudden switch from a balmy spring to hot, dry weather in the Corn Belt has wiped roughly 1 billion bushels, or 7 percent, off the potential size of the crop, according to traders, though a record crop is still within reach.

With the threat of further damage to come, some say news of bigger acreage will not change the tense mood.

"Weather will still dictate prices as we go into the weekend," said one Chicago futures trade. New-crop December corn has surged 14 percent this week.

Planting of soybeans was expected to be 2.2 percent larger than the USDA's first estimate after a near 30 percent rally in springtime prices encouraged farmers to sow idled acres or cut back secondary crops like barley.

The extra soy acres did not come at the expense of corn, according to analysts, who estimated that corn acres would be marginally higher thanks to unusually mild spring weather. Wheat is expected to be 1.4 percent larger than in March.

The USDA surveyed 70,000 growers in early June for its annual report on plantings, which covers two dozen principal U.S. crops, from cotton to wheat.

It also asked growers and commercial warehouses how many bushels of corn, wheat and soybeans were in their bins.

BRACED FOR ROILING...

For the past two years, USDA's June estimate of corn stocks has roiled markets, fuelling criticism of its data and methods. Last year, corn futures prices fell by 10 percent, a record decline, when USDA said supplies were far larger than expected and a bumper crop was on the way.

In a poll, traders said they expect the corn stockpile to be the smallest for June 1 since 2004, a sign of the squeeze on supplies, although the decline in stock levels from March 1 was the smallest in three years as demand ebbed due to depressed ethanol margins and stiff export competition.

Forecasts call for the dry weather to stretch into the summer, risking a third successive year of below-normal corn yields, the longest such string since 1995-97.

Soybean supplies also are tightening. With average yields, the crop would be the third largest on record but barely enough to avoid shortages, experts say.

The early season drought revived memories of the one in 1988, which was the worst Midwest drought since the Depression. The 1988 drought peaked in July with 40 percent of the country in extreme or severe drought. Corn yields were 29 bushels below normal, a bigger drop than current analysts predictions.

"Comparisons to the 1988 drought are not quite direct," said meteorologist Matthew Rosencrans of the U.S. Climate Prediction Center. He said the 1988 drought was centered in the northern U.S. Plains and Midwest while this year it runs from the central Plains to the eastern Corn Belt.

"The interesting aspect with this drought is its rapid onset," said Rosencrans.

On average, the acreage report issued at the end of June tends to overstate corn plantings and understate soybean area, according to the USDA. Its margin of error on corn acreage is 1.3 percent and the margin of error for soybeans is 2 percent.

(Reporting By Charles Abbott; Editing by Bob Burgdorfer)