August crop report adds clarity to volatile corn, soybean markets

by Ron Sterk
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KANSAS CITY — The highly-anticipated U.S. Department of Agriculture August Crop Production report brought a few surprises but also provided some much needed clarity to the market after a tumultuous spring planting season.

Last week the U.S.D.A. forecast 2008 U.S. corn production at 12,288 million bus, above pre-report trade expectations that averaged just under 12 million bus. Although down 786 million bus, or 6%, from the record large 2007 crop of 13,074 million bus, if realized this year’s crop still would be the second largest on record. It was the first survey-based forecast of the season, based on conditions as of Aug. 1, and was 573 million bus, or 5%, above the U.S.D.A.’s July projection of 11,715 million bus, which was based on June Acreage report data and trend yields.

When flooding covered large parts of prime Midwest farmland in early June, the U.S.D.A. trimmed harvested area and yield numbers, and consequently production from its initial May projection of 12,125 million bus. The August forecast was within 1% of the initial May projection.

"Nearly ideal growing season weather across much of the Corn Belt since late June has supported crop development and increased yield prospects," the U.S.D.A. said in its August World Agricultural Supply and Demand Estimates report last week. As a result, the U.S.D.A. boosted its forecast average yield to 155 bus an acre, up from a low of 148.4 bus during the height of flood worries and even above last year’s 151.1 bus. If realized the 2008 yield would be second only to the record high yield of 160.4 bus an acre in 2004.

Further, the U.S.D.A. "added" 350,000 corn acres for harvest to its June Acreage report estimate, bringing the 2008 harvest area to 79.3 million acres, the second highest since 1944 but still 8% below last year’s area.

The improved corn crop prospects mostly had been anticipated by the market, with futures prices dropping more than a third since peaking on June 26 but rising Aug. 12 after the report was released. On Aug. 13 prices for most corn futures contracts shot up the 30c-a-bu daily limit with support in part from higher soybean and crude oil prices and ideas that corn prices had dropped too much too fast.

The increased supply and lower prices also resulted in a boost in anticipated use of corn to produce ethanol, which the U.S.D.A. forecast at 4,100 bus for 2008-09, up 150 million from its July forecast, up 1,100 million, or 37%, from the current year and equal to a third of projected 2008 corn production. Projected feed use also was boosted 100 million bus from July.

The U.S.D.A. revised its area forecasts for corn and certain other crops based on a follow-up study in July of flood-affected areas in the Midwest.

While corn numbers went up more than expected, soybean production numbers grew less than anticipated from last year and declined from July projections.

Soybean production in 2008 was forecast at 2,973 million bus, up 388 million bus, or 15%, from 2,585 million bus last year and the fourth largest crop ever, but 7% below the record large 2006 crop. The survey-based forecast was down 27 million bus, or about 1%, from the July projection of 3,000 million bus, as well as below average trade expectations that also were near 3,000 million bus.

Yield prospects that initially were unchanged in June during the flooding were trimmed a half bushel in July and another 1.1 bus in August. Average yield was forecast at 40.5 bus an acre, based on Aug. 1 conditions, down from 41.2 bus in 2007 and off the record yield of 43 bus an acre in 2005. Yields were expected to be down from a year ago in the key states of Iowa, Illinois, Minnesota and Ohio.

Despite the scaled down production forecast, soybean area for harvest increased more than did corn area, based on the U.S.D.A. follow-up survey in July. The U.S.D.A. forecast soybean harvest area at 73.3 million acres last week, up 1.2 million acres from the June Acreage estimate of 72.1 million acres. If realized harvested area would be the third largest on record.

Soybean prices soared following last week’s U.S.D.A. reports as concerns about tighter supplies pulled prices from recent lows. Most contract months for soybeans, as well as for soybean meal and soybean oil, were up their daily limits on Aug. 13. Soybean prices had declined steadily since the first week of July until last week’s bullish reports.

Projected soybean use was trimmed modestly as a result of expected reduced supply. Soybean crush was reduced by 10 million bus this year and by 15 million bus for 2008-09. But projected use of soybean oil for methyl ester (biodiesel fuel) was increased by 100 million lbs for both marketing years as projected lower prices was expected to increase demand.

As last-half growing season weather continues to be nearly ideal, about the only obstacle standing between large corn and soybean crops this year would be an early frost, a concern because of lagging crop development. But meteorologists agree such a weather event cannot be predicted at this point, and some have indicated an early frost is less likely because of the wet Midwest summer.

This article can also be found in the digital edition of Food Business News, August 19, 2008, starting on Page 1. Click here to search that archive.

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