USDA Report Fails to Ease Concerns about US Corn Yield

Althoughthe USDA released a new report indicating that US farmers planted more corn than originally planned, dry weather concerns continue to determine corn prices.

On 29 June 2012, Reuters reported that the US Department of Agriculture (USDA) had released its much anticipated annual planting report, indicating that famers in the United States planted 96.405 million acres of corn this spring or 5 percent more than last year. In addition, the reported plantings exceeded an average trade estimate for 96.090 million. According to the USDA, it has been 75 years since US farmers seeded so many acres with corn.

Nevertheless, the positive news about the large plantings was not enough to ease concerns over theobserved dry weather, which threatens crops in the Midwest. As a rule, large plantings would result in a bumper harvest; however, the crop is currently threatened by drought stretching from the central US Plains to the Eastern Corn Belt, with corn stalks entering the pollination stage, which is crucial for determining yield.

The USDAalso recognised the drought, noting that only 88.851 acres would be harvested, less than the 89.1 million it estimated in a June report. Some traders also noted a worrying trend in the USDA report, namely that farmers planted more than previously anticipated in South Dakota and Missouri, where productivity is typically lower, whereas fewer acres than expected were planted in the highest-yielding states such as Iowa and Nebraska.

!m[](/uploads/story/80/thumbs/pic1_inline.png)As the USDA report failed to ease crop concerns, it also did little for corn prices. Reuters quotes Don Roose, analyst with US Commodities in West Des Moines, Iowa, who noted that they traded the report for “probably 30 seconds”. “Weather trumps the report”, he said.
On 2 July 2012, Bloomberg reported that corn for delivery after the next US harvest climbed to the highest level in more than nine months on speculation that a heat wave might hurt yields. According to data from the University of Nebraska at Lincoln, about 71 percent of the Midwest is experiencing drier-than-normal conditions. Bloomberg also quoted Luke Mathews, a commodity strategist at the Commonwealth Bank of Australia, noting that “yield potentials are declining daily and the inventory projections for the 2012-2013 season are being cut quite drastically”.

It is evident that the USDA report was not enough so as to offset the dry weather concerns, which are likely to have a significant impact not only on corn prices but on prices of other agricultural commodities as well. As reported by Bloomberg, soybeans and wheat also advanced, although according to the USDA report, US famers planted the third-largest amount of soybeans on record.
Reuters reports that quarterly stockpile data, also released on 29 June, indicated that corn inventories fell to 3.15 billion bushels in three months to June 1, the smallest since 2004 for this time of the year, which was with 0.7 less than expected. There are expectations that the corn stockpile will drop to the smallest in 16 years by the time of the fall harvest.