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Corn prices soared early last week after the United States Department of Agriculture cut nearly 11 million tonnes from its estimate of this year’s crop after taking its first field surveys.
The USDA estimates also included a record sized soybean crop.
Rain since Aug. 1 when the estimate was made had grain traders expecting an even bigger soybean crop.
“We’ve had ample rain falling over the driest areas since then. The trade assumes on the next report they’re going to increase it even more,” said Tim Hannagan, head grain analyst with Alaron Trading Corp.
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Although the soybean estimate was larger than expected, prices did not fall immediately due to support from the corn pit and reports of good export sales during the week.
The wheat crop estimate was also increased 2.7 million tonnes from the July forecast, and this caused major wheat markets to sag after gaining strength through late July and early August.
The strength in corn helped Canadian barley prices, which had been rising since mid July on hot, dry weather.
The Winnipeg Commodity Exchange December contract topped $140 a tonne Aug. 13, up from about $127 in mid July.
Prices may drop
Bill Biedermann, an analyst with Allendale, Inc. in Chicago, said the corn rally caused by the USDA report might not last long and prices could dip to pre-report levels by the time American farmers are in their combines.
That happened the last four times that the USDA reduced its estimate between July and August, he said.
Analyst Scott Stewart, of the Stewart-Peterson Group in West Bent, Wisconsin agreed, noting the forecast for end of the year supplies is higher than the forecast at this time last year. Without fear of shortages, why would users get into panic buying, Stewart asked.
The market’s reaction seemed to bear him out. The December corn futures price closed Aug. 8 at $2.531Ú4 a bushel, soared to $2.65 on Aug. 12 after the report, edged up slightly on Aug. 13 and 14 and then dropped to $2.621Ú4 on Aug. 15.
Once the harvest low is in, sometime in September, prices will gradually rally again, Biedermann predicted.
Meanwhile, a senior economist for the WEFA Group noted the USDA forecasts a smaller Chinese corn crop and reduced Chinese exports.
In 1996-97 China exported about 2.1 million tonnes of corn. The agriculture department now thinks China will export only one million tonnes.
“I wouldn’t be surprised to see that (export forecast) to go down to zero,” said WEFA senior economist Mike Helmar, noting El Nino weather disruptions are taking their toll on spring planted crops.
Although he doubted China will import much corn, other Asian markets supplied by China might have to turn to the U.S. for supplies.
Wheat situation
The USDA anticipates a bigger U.S. wheat crop, but it lowered production estimates for most other exporters. It pegged the Canadian crop at 23.5 million tonnes, down from a July estimate of 25.5 million.
The estimate for the Australian crop was down 2.5 million tonnes and Argentina down almost one million tonnes. The estimate for European production was up 400,000 tonnes.
With lower production, USDA predicts Canada, Australia and Argentina will export less but the U.S. will export more.
A report from Growers Marketing Service in Winnipeg suggests this means the U.S. will face reduced competition in world wheat markets and shouldn’t have to use export subsidies.
The USDA also raised its estimate for year-end 1997-98 stocks by four percent.
Biedermann said continuing changes in U.S. cropping plans, sparked by the new U.S. farm bill, means wheat will be a big crop next year and will have potential to outstrip demand and depress prices.
