It News: Corn prices surge to record high

August 10, 2012

Corn prices surge to record high

August 10, 2012 1:49 pm

Corn prices surge to record high

By Jack Farchy in London and Gregory Meyer in New York

Corn futures surged to a new record high after the US government said that the drought ravaging the US farmbelt had destroyed a sixth of the country’s corn crop in just one month.
The US Department of Agriculture slashed its estimate for the US corn crop by 16.9 per cent from its previous estimate in July, to just 10.779bn bushels. The report sent benchmark corn futures up more than 3 per cent to an record peak of $8.4375 a bushel.

Wheat, corn and soyabean prices have already surged 25-50 per cent higher since June, with corn and soyabeans surpassing the highs of the 2007-08 food crisis to touch new records.
The US is the world’s largest corn exporter and is a key supplier of other food commodities including soyabean and wheat. The USDA monthly estimates are among the most closely monitored barometers of food commodities markets.

The surge in prices has revived memories of the 2007-08 food crisis, when record high food prices triggered riots in more than 30 countries from Bangladesh to Haiti.
Politicians are increasingly alarmed by the current food supply situation. José Graziano da Silva, secretary-general of the UN’s Food and Agriculture Organisation, wrote in an opinion piece in Friday’s Financial Times that the situation was “precarious”.
“While the current situation is precarious and could deteriorate further if unfavourable weather conditions persist, it is not a crisis yet,” he said. But he added that “risks are high and the wrong responses to the current situation could create [a new crisis]”.
The USDA also sharply cut its forecast for the US soyabean crop, predicting that farmers would harvest just 2.692bn bushels of soyabeans, down 11.7 per cent from its previous estimate in July.
The forecasts were well below the market’s expectations. Analysts and traders were expecting the USDA to put the corn crop at 11.026bn bushels and the soyabean crop of 2.817bn bushels, according to a Reuters poll.
The predicted US corn yield of 123.4 bushels an acre would be the lowest since 1995.

Ahead of the report’s release, Tom Vilsack, US agriculture secretary, cautioned that the true supply picture would only emerge later this year.
“In the past, estimates have been off in drought years. We have to be cognizant of that fact,” he told the Financial Times on Thursday. “We’re not necessarily going to have the facts until the combines go in the field and we start harvesting and counting,” he added.
The reduced production forecast is likely to ramp up pressure on the US government over ethanol, which consumes roughly 40 per cent of the crop.
The UN’s Food and Agriculture Organisation earlier called on the US to drop government-mandated ethanol requirements.
“An immediate, temporary suspension of that [US ethanol] mandate would give some respite to the market and allow more of the crop to be channelled towards food and feed uses,” Mr Graziano da Silva said ahead of the release of the USDA forecasts.
Although parts of the US agricultural heartland have seen scattered rains in the past week, the drought continues to intensify. According to the USDA, 44 per cent of the US Midwest was suffering from “extreme” or “exceptional” drought this week, up from 36.8 per cent a week ago.
Half of the US corn crop is in “poor” or “very poor” condition, according to surveys of farmers, the worst such ratings since 1988.
The USDA had already slashed its forecasts for the US corn and soyabean crops by 12.3 per cent and 4.8 per cent respectively from initial projections when it updated its outlook in July.