Corn futures in Chicago surged to another two-year high today, as shrinking harvest prospects and contracting supplies fueled talk of prices heading toward records above $7.50 a bushel.
The weaker-than-expected corn harvest may push average U.S. yields as low as 151 bushels an acre, Matt Maloney, a broker with R.J. O’Brien & Associates in the Chicago Board of Trade corn pit, said today. In an Oct. 8 report, the USDA cut its yield estimate 4.1 percent from a previous forecast, to 155.8 bushels an acre.
“Most people I talk to expect that to get smaller,” Maloney said, referring to the average U.S. corn yield.
Overall, the USDA reports were “a huge shock” to the grain markets, Maloney said. There is a “perfect storm” of developments in the corn market, including rising demand and a weak U.S. dollar, he added. “I think we’re just getting started” rallying, he said.
As for corn prices, “we’re going to $7.50,” potentially by the middle of November, Maloney said. “I don’t see what’s going to stop it.”
At today’s close, December corn futures rose 32 cents to $5.60 ¼ a bushel, after earlier rallying 45 cents to $5.73 ¼, the highest price for a closest-to-expiration contract since September 2008. After corn futures on Oct. 8 jumped 30 cents, the initial maximum daily move allowed by the exchange, the limit was expanded to 45 cents Monday.
Corn futures reached $6.08 ¾ in August 2008 and notched an all-time high of $7.65 in June of that year.
Soaring corn prices are increasingly troublesome for pork and beef producers, whose margins have already come under pressure in recent months as feed costs escalated, analysts said. The spike in feed costs in 2008 helped trigger a deep slump across the livestock industry that forced producers to cut herds.
Livestock and poultry producers “have plenty of reasons to be afraid,” analysts Steve Meyer and Len Steiner said in a report today.
“While cattle, hog and broiler prices are sharply higher than a year ago, livestock and poultry producer margins may be in worse shape than they were in 2009, and those margins are getting worse by the day as corn prices advance,” Meyer and Steiner said. “Higher meat prices will be needed (via demand improvement or supply cuts) to keep these producers in business.”
Corn prices extended a three-month rally after the USDA predicted a smaller than expected harvest and said domestic supplies will fall to a 15-year low.
The USDA lowered its corn harvest estimate to 12.66 billion bushels, down 3.8 percent from a September projection and down 3.4 percent from the record 13.11 billion-bushel crop of 2009.
In a separate report, the USDA estimated U.S. corn stockpiles at the end of the 2010-11 marketing year at 902 million bushels, the lowest since 1995-96, and raised its projected average 2010-11 U.S. corn price range to $4.60 to $5.40 a bushel from $4 to $4.80 previously.
Harvest prospects deteriorated over the past two months after heavy rains and extreme heat during the second half of summer hampered crop development. The USDA also reduced its estimate for the soybean harvest to 3.41 million bushels, down 2 percent from a previous projection but still a record.
At Monday's close, November soybean futures rose 27 ¾ cents to $11.62 ¾ a bushel, after reaching $11.88 ¾, the highest for a nearby contract since August 2009.
In the CME Group livestock pits, traders were still trying to get a handle on the possible impact of increasingly expensive corn.
Last week’s USDA reports could be bullish for hog prices next summer because “we won’t be expanding” the herd, said Jim Burns, an independent trader at CME. Additionally, some producers may have to send breeding animals to slaughter if feed costs climb further.
“In an economic sense, how are they going to feed them?” Burns said.
At Monday's close December lean hog futures rose 1.15 cents to 72.7 cents a pound. December live cattle futures fell 0.075 cent to 98.85 cents a pound.