Crop Traders Bullish For Ninth Week On U.S. Drought

By Whitney McFerron and Nicholas Larkin - Jun 22, 2012
Bloomberg
Soybean and corn traders are bullish for a ninth week on mounting concern that dry weather will cut U.S. crop yields at a time when hedge funds are adding to wagers on higher prices.

Twenty-three analysts surveyed by Bloomberg said they expect soybeans to climb next week and three were bearish. A further four were neutral.

Twenty expect gains in corn, four predicted a decline and five were neutral. Speculators raised bets on costlier soybeans for the first time in six weeks and increased net-long positions for corn from the lowest level in almost two years in the week ended June 12, U.S. Commodity Futures Trading Commission data show.

The U.S. Department of Agriculture cut its estimate for corn and soybean conditions on June 18 after dry weather in the Midwest, prompting the biggest two-day rally for corn since October 2010 and soybeans since October 2011. Areas of Iowa and Illinois, the two largest U.S. growers of both crops, have had less than half the normal amount of rain in the past 30 days, National Weather Service data show. The USDA expects China to import record amounts of both crops next season.

“The current dryness in the U.S. Midwest will further reduce the crop yields and crop conditions,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “Because of the earlier planting and speedy crop progress, the need for moisture is quite high.”

Drought Conditions

Soybeans rose 14 percent to $13.71 a bushel on the Chicago Board of Trade this year as corn dropped 15 percent to $5.525 a bushel. The Standard & Poor’s GSCI gauge of 24 raw materials slipped 13 percent and the MSCI All-Country World Index (MXWD) of equities added 1.6 percent. Treasuries returned 1.8 percent, a Bank of America Corp. index shows.

Seventy-one percent of the Midwest suffered from “abnormally dry” or worse conditions by June 19, up from 60 percent a week earlier, according to data from the University of Nebraska at Lincoln. As of June 17, crop ratings were the worst for the time of year since 2008, with 63 percent of corn and 56 percent of soybeans in good or excellent condition, USDA data show. That compares with 70 percent of corn and 68 percent of soybeans receiving the top ratings a year earlier.

Demand for U.S. farm goods is strengthening. China may buy 61 million metric tons of soybeans and 7 million tons of corn in the 2012-13 season, the most ever, the USDA said June 12. The Asian nation is the world’s biggest soybean consumer and second- largest user of corn after the U.S. While China’s economic growth will slow to 8.2 percent this year from 9.2 percent in 2011, that’s still almost four times the anticipated expansion in the U.S., the International Monetary Fund estimates.

Crop Plantings

The USDA said in March that farmers planted 95.9 million acres of corn, the most since 1937. That reduced the area available for soybeans, with plantings this year falling 1.5 percent to 73.9 million acres. Stockpiles of the oilseed may drop 19 percent to 175 million bushels by the end of the marketing year on Aug. 31 and slide to a four-year low of 140 million bushels next year, the USDA estimates.

Hedge funds and other money managers increased net-long soybean positions by 19 percent in the week ended June 12, CFTC data show. The 4.1 percent advance in corn wagers was from the lowest level since late June 2010.

Declining energy prices may curb demand for crops used to make biofuels. The USDA estimates that about 5 billion bushels of the U.S. corn crop will be used to make ethanol in 2012-13, close to the record 5.05 billion estimated for the 2011-12 season.

Energy Slumps

Crude oil slid to an eight-month low in New York yesterday and U.S. ethanol production tumbled 2.2 percent last week, the Energy Department said June 20. Ethanol producers are losing about 14 cents on every gallon, according to data compiled by Bloomberg.

Concern about Europe’s debt crisis and its impact on the global economy may curb demand for all commodities. The S&P GSCI gauge slid 22 percent from its closing high in February yesterday, entering a bear market.

The Federal Reserve cut its forecast for 2012 U.S. growth on June 20 to 1.9 percent to 2.4 percent, from an April forecast of 2.4 percent to 2.9 percent. The central bank also extended Operation Twist, an economic stimulus plan to buy longer- maturing debt, while refraining from additional purchases.

The USDA’s forecast of record corn yields of 166 bushels an acre is “far too optimistic,” and the agency may need to cut its outlook for the harvest, currently pegged at a record 14.79 billion bushels, Commerzbank’s Fritsch said. Morgan Stanley recommended buying corn on June 19 and Societe Generale SA said that day that corn and soy face “upside price risks.”

Sugar Prices

In other commodities, eight of 14 traders and analysts surveyed by Bloomberg expect raw sugar to advance next week and six were bearish. The commodity slid 11 percent this year to 20.79 cents a pound on ICE Futures U.S. in New York.

Twelve people surveyed said copper will rise next week and 11 predicted a drop, while nine were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, slumped 3.7 percent to $7,318.25 a ton this year.

Eleven of 25 traders and analysts surveyed said gold would climb next week, 10 said prices would retreat and four predicted little change.

Futures on the Comex exchange in New York are hardly changed since the start of January at $1,567.20 an ounce, after 11 years of gains. Prices reached a record $1,923.70 in September.

“Implementation of the mildest monetary policy easing measurements as well as indications about U.S. growth risks due to the European crisis does certainly not favor cyclical commodities,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “At these suppressed prices, a supply response in some metals can be expected from high-cost producers and this should support prices.”