Corn, wheat, soybean prices surge, indicating higher costs for food, biofuels as USDA cuts crop estimates amid July heatwave

Andrew Rogers

LOS ANGELES , August 15, 2011 (Industry Intelligence) – After a damaging July heat wave, the U.S. Department of Agriculture cut its crop forecast for U.S. farmers sending corn, soybean, and wheat prices higher, indicating increased costs for food and biofuels, Bloomberg reported Aug. 11.

Corn-crop estimates were cut 4.1% by the USDA, while soybean projections fell 5.2% and the spring-wheat forecast dropped 5.2% from July predictions. In July, the hottest temperatures since 1955 hit parts of the Midwest, the primary growing region.

Shrinking supplies of corn could hike costs for ethanol refiners including Poet LLC, Archer Daniels Midland Co., and Valero Energy Corp., while also affecting meat producers Tyson Foods Inc., and Smithfield Food Inc., which use the grain for animal feed. Over the past year, corn prices have surged 74%.

The USDA said Aug. 11 that corn production will reach 12.91 billion bushels versus the July projection of 13.47 billion, and last year’s output of 12.45 billion bushels. Corn yields were reduced to 153 bushels per acre from 158.7 last month. According to Iowa State University agronomists corn did not pollinate well in a large part of fields across the Midwest.

Soybean output will total 3.06 billion bushels, down from July’s estimate of 3.23 billion, and 3.33 billion bushels last year, according to the USDA.

Soybean yields could be further reduced if the next week’s hot weather isn’t tempered by rain, Northstar Commodity Investment Co. chief economist Mark Schultz said. With supplies tight this year, South American soybean production cannot have problems when planting starts in September, Schultz added.

Oilseed processors Bunge Ltd and Archer Daniels Midland may see margins drop amid falling supplies. This year, the difference between the cost of a soybean bushel and the value of the produced meal and oil, called the crush spread, has fallen 39%.

Soybean plantings were around 75 million acres this year, down from June’s estimate of 75.2 million, and the 77.4 million acres planted last year as farmers chose to plant corn for its higher value, the USDA said.

The USDA said spring-wheat production could total 522 million bushels, down from July’s projection of 550.7 million, and last year’s harvest of 616 million bushels.

Total U.S. wheat production may drop to 2.08 billion bushels from July’s estimate of 2.11 billion, the USDA said.

The primary source of this article is Bloomberg, New York, New York, on Aug. 11, 2011.

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