The numbers are in and the 2012 Drought is taking its toll. USDA reports that corn production is forecast at 10.8 billion bushels, down 13% from 2011 and the lowest production since 2006. Based on conditions Aug. 1, the agency cut the yield estimate to 123.4 bushels per acre, down 23.8 bushels from from 2011. That's a significant cut from the July report where USDA dropped the yield estimate to 146 bushels.
Though the numbers were close to Farm Futures expectations, Market Analyst Arlan Suderman says corn is expected to drop closer to 10 billion bushels.
"USDA had to make some assumptions that high prices would ration demand to maintain stocks at levels that the market has deemed to be "bare pipeline" levels in the past, so it drops demand enough to maintain those stocks," Suderman says. "Many fund managers tend to interpret that as evidence that demand has already slowed, but rather it is an indication of the work that the market must do."
If the corn crop comes in at the new numbers USDA says it will be the lowest average yield since 1995. And the area harvested was cut to 87.4 million acres, down 2% from the June forecast, but 4% ahead of the acres harvested in 2011.
Bryce Knorr, senior editor, Farm Futures, says the biggest surprise in the report is the soybean production estimate. "We were the lowest estimate in the industry, and USDA was 4 million bushels below us," he says. "The corn numbers are also friendly, and the size of the crop is likely to shrink further because the government reduced its acreage only modestly. A much bigger reduction is likely in subsequent reports."
USDA pegged the soybean crop at 2.69 billion bushels, down 12% from 2011. Based on the August 1 numbers, yields will average 36.1 bushels per acre, down 5.4% from last year. This would be the lowest yield since 2003. And the area to be harvested is estimated to drop to 74.6 million acres, down 1% from June but up 1% from 2011.
"USDA dropped new-crop soybean exports to 1.1 billion bushels in the report, which will necessitate a lot of price rationing ahead of Brazil's new-crop harvest in February and March," Suderman added. He said China isn't going to give up buying soybeans very easily.
Suderman said that soybean trading following the report release was highly volatile.
"High frequency traders using computers to read headlines whipsawed corn prices back in forth in a 33 cent trading range in the opening few minutes of trade, raising the ire of farmers, end users and traditional traders. Soybeans traded about a 25-cent spread during the period," Suderman says.
While corn and soybeans attempt to weather the storm, wheat and cotton posted estimated harvest gains.
Wheat production is at 2.27 billion bushels, up 2% from the July forecast and up 13% from 2011. The U.S. yield forecast is at 46.5 bushels per acre as of August 1, up 0.9 bushels from last month, and 2.8 bushels from last year. Winter wheat production is forecast at 1.6 billion bushels, up 1% from July and up 13% from 2011. The crop is forecast at a record high 48 bushels per acre as of August 1.
Cotton production is forecast at 17.7 million bales (a bale weighs 480 pounds), which is 13% over last year. Yield is expected at 784 pounds per harvested acre, down 6 pounds from last year. Upland cotton production is forecast at 17 million bales, up 15% from 2011. Pima cotton production, forecast at 663,000 bales, is down 22% from last year. Producers will harvest 10.8 million acres for all cotton, up 14% from 2011.