The U.S. government slashed its outlook for domestic corn production by 2.7% and its soybean harvest view by 1.5% on Thursday as dry soils in key western growing areas cut into the potential for a bumper harvest.
The dry conditions also hampered U.S. wheat production, which was forecast at a 19-year low of 1.697 billion bushels, 2.8% below the government’s July forecast.
Lower-than-expected production from the world’s top corn and No. 2 soy producer will enhance concerns of tight global crop supplies and food inflation, potentially raising prices of livestock feed, vegetable oils used for cooking and fuel, as well as bread and pasta.
The U.S. Agriculture Department’s latest crop forecasts were well below the average of analysts’ forecasts and sparked a rally in the futures markets, with Chicago Board of Trade corn surging 5.0% to its highest in nearly six weeks after languishing in negative territory before the report was released.
CBOT soft red winter wheat futures rose 4.2% to their highest since early May and soybean futures gained 1.6%.
The wheat harvest is nearly complete, while corn and soy harvesting begins next month.
“We need to grow a large crop and we can’t have the yield adjusted down too far,” said Don Roose, president of U.S. Commodities in West Des Moines, Iowa. “With the rest of the world short, we might have to ration supplies. World grain supplies are just tight so we’re counting on North America to make up the difference.”
Corn production was likely to reach 14.750 billion bushels, based on an average yield of 174.6 bushels per acre, the U.S. Agriculture Department said in its monthly World Agricultural Supply and Demand Estimates report.
The government projected record corn yields in major production states east of the Mississippi River such as Illinois, Indiana and Ohio. But drought laid waste to crops in South Dakota and Minnesota, wrecking the potential for a record harvest that was predicted earlier in the growing season.
The soybean harvest was pegged at 4.339 billion bushels on an average yield of 50.0 bushels per acre.
Analysts had been expecting the report to show corn production of 15.004 billion bushels and soybean production of 4.375 billion bushels. Yields had been estimated at 177.6 for corn and 50.4 for soybeans.
A month ago, USDA’s report forecast corn production of 15.165 billion bushels on an average yield of 179.5. The July report also predicted a soybean harvest of 4.405 billion bushels and an average yield of 50.8.
Source: Reuters (Reporting by Mark Weinraub, Additional reporting by Karl Plume; Editing by Dan Grebler)