This week, the USDA dropped its forecast for U.S. corn production this year to 10 per cent less than last year’s record crop.
It also reduced the amount of corn that will be carried from the 2008 crop year into 2009 to a 13-year low.
The combination sent prices soaring with corn for December delivery up 17.5 cents a bushel to $7.03. Corn for July, 2009 delivery set a new futures’ market record of $7.2625 and corn for delivery this July was up 16 cents to $6.7325.
The USDA’s June 10 forecast reduced production by three per cent from May’s prediction.
Because of the cold, wet weather in the U.S. Midwest, the USDA cut its projected average yields by five bushels per acre.
This drop in yield, combined with a drop in acres seeded to corn compared to last year, has reduced projected production to 11.7 billion bushels from 13 billion last year.
For its forecast the USDA set the number of acres expected to be seeded
to corn this year at 86 million. That is expected to come down in
future reports as it is adjusted to reflect flooded fields and crops
that struggled in cold May weather.
Adding to supply concerns for livestock producers, corn processors and
corn exporters is the growth in the ethanol industry. This year U.S.
ethanol companies are expected to use 35 per cent of the corn crop or
four billion bushels of corn this year compared with three billion last
year.
With ethanol’s demand for corn pretty much locked in any further
reduction in corn production will squeeze the volumes available for
feeding and export.
It must be remembered that Canada is a net importer of U.S. corn for both livestock feeding and ethanol production.
U.S. wheat prices rose in sympathy with the jump in corn as did prices for soybean meal. Soybean and soybean oil prices fell.
(Don’t Panic is what author Douglas Adam’s says is on the cover of
Hitchhiker’s Guide to the Galaxy. Mr. Adam’s said that while the words
appear to comfort they actually have the opposite effect as readers
worry why they are not supposed to panic.)
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