"Persistent and extreme June dryness across the central and eastern Corn Belt and extreme late June and early July heat from the Central Plains to the Ohio River Valley have substantially lowered yield prospects across most of the major growing regions," said USDA in this morning's World Agricultural Supply and Demand Estimates.
The department won't survey the corn and soybean crops until next month, but brutally hot, dry weather across much of the Corn Belt made it clear that yield prospects had plunged.
Corn futures had already built in a smaller corn crop and had soared about $1 in a week before easing back yesterday. Two hours after USDA issued its new estimates this morning, old- and new-crop futures were trading about 15 to 20 cents higher.
"I think this market is somewhat relieved in a certain sense that the USDA did come in with some lower expectations on yield," said Jim Bower, president of Bower Trading, Lafayette, Ind. "This is a good report. It solidifies what the trade had been thinking. It restores confidence to price discovery."
On top of the lower U.S. corn crop prospect, USDA reports lower potential soybean yields and declining wheat crop prospects in Russia, Kazakhstan, and China.
Tightening domestic and global supplies led USDA to raise its projected season-average farm prices for wheat, corn, sorghum, barley, oats, soybeans, and soybean meal.
Corn Crop Suffers
"In the Midwest, especially Illinois and Indiana, I'm actually shocked at how bad some of these yields are going to be," said Bower in comments on a MGEX conference call after USDA issued its supply-demand report. He said producers already expect no crop from some fields in those areas.
The average pre-report trade estimate for USDA's corn yield projection was about 154 bu./acre, said Bower. "But under the surface all of us in the trade thought the number needed to be substantially lower."
On a pre-report discussion the CME Group hosted yesterday afternoon, AgResource Company President Dan Basse said his company estimated yield prospects at 141 to 144 bu./acre, but expected USDA to keep its number near 150 bu.
"But if this is truly a drought year and we start talking about a 20 percent yield decline, that puts the U.S. yield at 130 to 132 bu./acre," said Basse. "That is a catastrophe."