Wednesday 25 July 2012

U.S. Corn Crop Forecast 13% Below USDA Estimate By Cekander

By Luzi Ann Javier - Jul 24, 2012
Bloomberg

Newedge USA LLC, the third-largest U.S. futures brokerage, cut its estimate for the nation’s corn production after conditions deteriorated for a seventh straight week in the world’s largest grower. Futures pared losses.

The harvest will probably drop to 11.327 billion bushels (287.7 million metric tons) in the year beginning Sept. 1, smaller than an 11.8 billion bushel estimate last week and the lowest in six years, said director of grain research Dan Cekander, who correctly predicted in March that soybeans will trade at the most expensive level relative to corn since 2010. Without increased rainfall, output may be smaller, he said.

Newedge’s estimate is 13 percent below the 12.97 billion bushels predicted by the U.S. Department of Agriculture on July 11 and 23 percent below the government’s earlier forecast for a a record 14.79 billion bushels from the most acres since 1937.

Cekander joins Damien Courvalin from Goldman Sachs Group Inc. in cutting his estimate. The drought that prompted the government to declare almost 1,300 counties in 29 states as natural-disaster areas, may cause an 8 million ton global shortage, according to Commonwealth Bank of Australia.

Corn surged to a record $8 a bushel yesterday as Goldman raised its three-month forecast to $9. Futures fell 1.3 percent to $7.75 at 6:01 p.m. Singapore time today after a 57 percent surge from mid-June through July 20 prompted investors to sell on concern about the European debt crisis and amid a forecast for some rain in growing areas.

“This is nearing disaster,” Wayne Gordon, a strategist at UBS AG in New York, said in a report today. “Corn conditions seem past the point of return.”

Ratings Drop

Only 26 percent of the crop was in good-to-excellent condition as of July 22, compared with 77 percent two months earlier, according to the USDA. That was the worst rating for this time of the year since 1988 when output plunged 31 percent.

Cekander bases his prediction on yields averaging 129.8 bushels an acre, compared with the USDA estimate of 146 bushels and Goldman’s forecast of 126 bushels.

“I still fear that yields could decline to 125 bushels per acre if increased precipitation is not received,” Cekander said in an e-mail today in response to Bloomberg questions. “I want to see this week’s rain event before I change prices,” he said. He predicted last week that futures may climb to $8.50.

While scattered rainshowers were forecast within the next two weeks in the Midwest, “nothing major or sustained to alleviate the stress and continued high temperatures” are expected, Jim Dale, a senior risk meteorologist at British Weather Services, said in an e-mail yesterday.

Smaller Yields

The El Nino weather pattern, which can bring higher rainfall to North and South America, and drought to parts of Asia and Australia, is “still on track, but this is a long piece of string and uncertain in terms of strength,” said Dale in response to Bloomberg questions. He correctly predicted last year that drought would hurt wheat from the U.S. to Europe.

Corn yields measured yesterday from St. Louis to Rock Falls, Illinois were 27 percent smaller than a year ago and 21 percent below the final 2011 USDA forecast in the three crop districts, based on field inspections during the first day of the crop tour of Doane Advisory Services Co. Illinois is the second-largest producer and home to a farm where Cekander, a fourth-generation farmer, grows corn and soybeans.

Newedge is the third-largest brokerage by customer accounts, behind Goldman and JPMorgan Securities LLC, according to Commodity Futures Trading Commission data as of May 31.

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