Corn may rally to a record $8.50 a bushel as the worst U.S. drought in decades cuts production in the world's biggest exporter, driving global stockpiles lower, according to broker Newedge USA LLC.
The U.S. harvest may drop to 11.8 billion bushels (299.7 million metric tons), said Dan Cekander, director of grain research, who correctly predicted in March that soybeans would trade at the most expensive level relative to corn since 2010. Cekander's output forecast is 29.75 million tons less than the latest estimate from the U.S. Department of Agriculture, and would be the smallest crop since 2006-2007. Futures traded as high as $7.89 Tuesday, near the $7.9925 record set in 2008.
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The drought is baking farms from Arkansas to Ohio, reducing yields, after frosts followed by drought cut wheat harvests in the former Soviet Union, prompting the United Nations and the USDA to pare estimates for world grain harvests. Dimming corn- crop prospects in the U.S. may push global food costs higher, the Food & Agriculture Organization said earlier this month.
"If it doesn't start raining the rest of July, you're going to have a significant shortfall here in production," said Cekander, a fourth-generation farmer who grows corn and soybeans in Illinois, the second-largest U.S. grower of both crops. "That would put the 2012-2013 world corn carry-out below last year," he said, referring to year-end stockpiles.
Corn for December delivery fell 1.1 percent to $7.63 on the Chicago Board of Trade at 4:50 p.m. in Singapore. Since reaching the year's low in June, the grain has rallied 51 percent. November-delivery soybeans, which lost 0.2 percent to $15.8725 a bushel, reached $16.07 yesterday, the highest price since 2008.
Corn yields will probably drop to 134.9 bushels an acre as crop conditions deteriorate, Cekander said in an interview yesterday, forecasting prices of $8.25 to $8.50 for December futures. That compares with the USDA estimate of 146 bushels, and a forecast of 138 bushels from AccuWeather.com. Last year's harvest was 12.36 billion bushels, with a yield of 147.2 bushels.
"The fear is that the U.S. corn yield will decline to 125 to 130 bushels per acre if hot and dry weather persists through mid-August," Cekander said. The 11.8 billion-bushel harvest estimate is based an area of 87.5 million acres (35.4 million hectares), lower than the USDA's 88.9 million acres, he said.
Corn may rally to as much as $9 if the yield on the U.S. crop drops to less than 140 bushels an acre, according to a report from UBS AG today. Further declines in the harvested area as well as the yield were likely in August, the bank said.
About 55 percent of the contiguous U.S. states were in moderate-to-extreme drought at the end of June, the highest since December 1956, according to the National Climatic Data Center. USDA ratings for corn and soybeans as of July 15 were the worst for that time of year since a drought in 1988.
Yield losses for corn are nearing levels last seen in 1988, Greg Grow, director of agribusiness at Archer Financial Services Inc., said yesterday. U.S. production slumped 31 percent that year, according to USDA data.
A rally to $8.50 may trigger so-called rationing in demand from feed users, and crop losses could prompt the government to lower the mandate for using corn-based ethanol in fuel, Cekander said. "That would allow a reduction in corn grain for ethanol and free up some supply to get us by."
Global corn production in 2012-2013 may total 905.2 million tons compared with demand of 900.5 million tons, according to the USDA, which forecasts world ending stockpiles of 134 million tons. The last time world demand exceeded output was 2010-2011.
Newedge was created in 2008 as a venture between Societe Generale SA and Credit Agricole CIB and offers global brokerage services on listed and over-the-counter derivatives and securities, according to its website.