* Smallest corn crop in 6 years, 2 pct below estimates
* Soy crop 4 pct below trade expectations
* Lowest U.S. corn use in 6 years, soy in 9 years
* Russia wheat down 12 pct, China corn up 2.5 pct
* Record soy crop makes Brazil No. 1 in world
By Charles Abbott
WASHINGTON, Aug 10 (Reuters) – The worst U.S. drought in
more than half a century has battered the corn and soybean crops
with larger losses than expected, causing domestic stockpiles to
shrivel to near bare-bones levels, government data showed on
Friday.
In the most authoritative statement yet on the withered U.S.
crops, the Agriculture Department, based on its first samples
this season from parched, scorched fields, estimated the corn
harvest would drop 13 percent from last year.
With production at just 10.8 billion bushels, the yield
would be the lowest since 1995.
It would be the third disappointing crop in a row for the
world’s largest corn grower and main agricultural exporter.
The prospect intensified fears the world is headed for a
repeat of the 2008 food price crisis. World food prices surged 6
percent in July, a U.N. agency said.
The charity Oxfam warned of price spikes ahead “with
devastating consequences for those already struggling to get
enough to eat.” Oxfam urged steps such as a waiver of the U.S.
law requiring use of corn ethanol as motor fuel, to calm high
prices.
However, supplies of wheat and rice “are good if not high,”
private consultant John Schnittker said. “The talk of world food
crisis seems unduly apocalyptic for now,” he said.
The USDA slashed its estimate of the corn crop by 17
percent, following a big cut in July. Its latest estimate was 2
percent lower than traders had expected.
While near-record Chicago grain prices barely budged on the
data, the numbers may add urgency to the renewed
food-versus-fuel debate centered on the U.S. ethanol mandate.
About 40 percent of the crop will be made into fuel for cars and
trucks.
International and domestic pressure has grown for curbing
the program, but pundits say the policy has staunch Farm Belt
support that is unlikely to waver in an election year. The Obama
administration, like its Republican predecessor, has stood by
the mandate, called the Renewable Fuels Standard.
“Any attempt to change the Renewable Fuels Standard …
would simply be a knee-jerk reaction to the benefit of Big Oil,”
ethanol trade group Growth Energy said. It said ethanol output
is falling due to high corn prices.
Livestock producers and meatpackers petitioned the
government last week to reduce or eliminate the ethanol mandate
because of the short crop.
Even with unexpectedly deep cuts to the government forecast
for exports and ethanol use, U.S. corn stocks at the end of next
summer will shrink to only 650 million bushels — a three-week
supply, the slimmest margin in two decades.
U.S. inventories of soybeans, a key component of livestock
feed from India to Indiana, would be the smallest in nine years
after the USDA said only 2.69 billion bushels would be harvested
this fall, 4 percent less than traders had expected. Stocks will
drop to 115 million bushels, the second-smallest since 1973.
Corn prices, which have rallied more than 60 percent
since mid-June, briefly surged to a record when the USDA
released its report. They later retreated as traders assessed
signs that soaring costs were helping curtail demand.
Soybean prices held gains of nearly 2 percent,
although some traders said the agency’s dire forecasts may yet
prove too pessimistic as late rains offer hope for soy plants.
SECOND-GUESSING
The report is an abrupt reversal from just two months ago
when farmers, making the largest corn plantings in 75 years,
expected a record haul. Consumers worldwide were also hopeful
that a robust harvest from the biggest agricultural exporter
would help end a period of depleted global stockpiles.
Then came the weather. More than 60 percent of the
continental United States, including prime farm and ranch
territory, was under moderate to exceptional drought this week.
July was the hottest month on record, beating the worst
month of the Dust Bowl era in 1936. Half the corn crop is in
poor or very poor condition, the worst ratings since the drought
of 1988; a year ago, 60 percent was top-rated.
Now, however, many fear record-high prices and meager
stockpiles will rule commodity markets for at least a year more
— and it may worsen if growing signs of shortages prompt some
countries to impose export bans or make panic purchases, as they
did during the dramatic price spike in 2008.
Bangladesh said on Thursday it had extended a ban on exports
of most varieties of rice until next June to ensure domestic
supplies. China said it would release corn and
rice from government reserves to pad supplies until the fall
harvest.
The impact of the drought has been increasingly apparent
over the past eight weeks, but the USDA’s report was the most
thorough in measuring the damage. It interviewed more than
28,000 growers and tested yields in thousands of fields. It says
there is a 10.7 percent margin of error for its estimate of the
corn crop and 11.4 percent on soybeans.
Even so, traders in Chicago immediately began
second-guessing the figures. The USDA forecast an average corn
yield of 123.4 bushels an acre. Traders had expected a yield of
127.3 bushels an acre.
“There’s room for these corn numbers to come down more. For
those of us who have been in the field, the crop numbers are
likely to fall further,” said analyst Dan Basse at AgResource
Co. Some said the USDA was overestimating the number of acres
that would be harvested this year given the damage.
On soybeans, forecast to yield an average 36.l bushels per
acre versus expectations of 37.8 bushels, the debate was over
the impact of recent rains at the tail end of the season.
“The story on beans right now is that the weather is
improving. It’s going to be interesting to see if we can
stabilize this yield or improve it,” said Brian Basting of
Advance Trading.
BLACK SEA DIMS
The USDA also highlighted declining conditions across the
Black Sea, which have fueled a nearly 50 percent surge in wheat
prices even though the U.S. crop was barely touched by drought.
The USDA revised up its forecast of season-ending wheat supplies
by 5 percent, to 694 million bushels.
The USDA lowered its forecast of Russia’s wheat crop by 12
percent and Kazakhstan’s by 15 percent because of hot, dry
weather.
Other grains also looked in more robust supply globally,
with China’s corn crop revised up 2.5 percent from a July
estimate and Brazil’s boosted 4 percent, topping the United
States as the world’s largest grower.
Global wheat consumption will rise slightly as more of the
grain is used as a substitute for corn in livestock feed. Corn
consumption would fall by 4 percent worldwide, with the smaller
U.S. crop accounting for three-quarters of the decline.
Less corn will be used in making ethanol due to drought, the
USDA said. It lowered its estimate by 8 percent for 2012/13, to
4.5 billion bushels.
World food prices rose by 6 percent in July, driven by
surging corn and sugar prices, the U.N. Food and Agriculture
Organization said. The index is below its February 2011 peak but
higher than in 2007-08, when fear of shortages drove up prices
and prompted export bans in some countries.
