Corn, soy set new highs as US crops wither

Monday, 16 July 2012 18:19

Posted by Shoaib-ur-Rehman Siddiqui

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LONDON: US corn prices surged by more than 4 percent on Monday while soybeans also posted strong gains as crops in the key Midwest growing region deteriorated and forecasts indicated there was little relief in sight from the worst drought since 1988.

Chicago corn and soybean futures set contract highs and wheat prices posted strong gains with the US drought the most important of a series of weather-related crop setbacks. The Black Sea region, the European Union and India were among other key producing areas suffering adverse crop conditions.

"Strong gains reflect the ongoing supply issues in the US as forecasts of high temperatures over the week will lead to further deterioration in corn and soybeans yield potential," said Luke Mathews, a commodities strategist at the Commonwealth Bank of Australia.

"Even though there are some forecasts of light rains, there is consensus out there that the rain will hardly be enough to offset the drought."

Chicago Board of Trade December corn stood 4 percent higher at $7.69-3/4 a bushel at 1137 GMT after setting a contract high of $7.72. The key new crop contract has risen by more than 50 percent since mid-June.

Barclays Capital analyst Sudakshina Unnikrishnan said there was scope for further downward revisions to US corn yields.

The US Department of Agriculture last week slashed its projected corn yield to 146 bushels an acres from a previous forecast of 166 bushels.

"I think with the persistence of these hot and dry conditions we could drop to the low 140s or even 140 (bushels an acres)," Barclays Capital analyst Sudakshina Unnikrishnan said, noting weekly USDA crop rating issued later on Monday should show declines in both corn and soybean ratings.

CBOT November soybeans rose 2.7 percent to a contract high of $15.94-3/4 a bushel. The contract has risen about 21 percent since mid-June.

SOY UNDERPERFORMS

Goldman Sachs said that with a large shortfall in the 2011/12 South American production, the global availability of soybeans would be limited with higher new crop prices required to limit demand in the coming months.

"We view the recent underperformance of soybean prices relative to corn as excessive and as a result expect soybean prices to outperform corn in coming months," Goldman Sachs said in a report on Monday.

Soybeans were also seen supported by strong Chinese demand.

"China's demand for soybeans remains robust as the livestock breeding sector has entered peak consumption period, which will draw down the stocks at ports during August to October period," said Xia Tian, an analyst with Yong'an Futures, referring to the winter months and holiday period when meat consumption rises.

Last week, China's soybean stocks at ports fell for a second straight week to about 6.6 million tonnes from 6.7 million tonnes previous week.

Prices for grains and oilseeds have also been supported by adverse weather in the Black Sea region.

Ukraine's corn yield is likely to fall by 1.0-1.2 tonne per hectare this year against 2011 due to unfavourable weather, a senior weather forecaster said on Monday.

"We are seeing everywhere the reverse from what we should be seeing," a European trader said, referring to the adverse weather conditions seen in many parts of the world and the storms in Eastern Europe over the weekend.

CBOT September wheat rose 3.2 percent to $8.75 a bushel while November milling wheat in Paris climbed 2.8 percent to 266.00 euros a tonne after setting a contract high of 267.50 euros.

Rainy weather in France in the past two weeks remains a worry for farmers especially for grains that are now mature. Weather forecasters predict that a return of drier conditions should be short-lived.

"There may be good yields in the fields but the question now is how much can enter in the food chain," FCStone said in a note. "The entire northwestern block of northern France is suffering massive disease pressure," it added.