Worst-in-Generation Drought Dims U.S. Farm Economy Hopes (Source: Bloomberg)
Cloudless skies seldom look so ominous. A worst-in-a-generation drought from Indiana to Arkansas to California is damaging crops and rural economies and threatening to drive food prices to record levels. Agriculture, though a small part of the $15.5 trillion U.S. economy, had been one of the most resilient industries in the past three years as the country struggled to recover from the recession. “It might be a $50 billion event for the economy as it blends into everything over the next four quarters,” said Michael Swanson, agricultural economist at Wells Fargo & Co. (WFC) in Minneapolis, the largest commercial agriculture lender. “Instead of retreating from record highs, food prices will advance.”
The U.S. Department of Agriculture declared July 11 that more than 1,000 counties in 26 states are natural-disaster areas, the biggest such declaration ever. The designation makes farmers and ranchers in affected counties -- about a third of those in the entire country -- eligible for low-interest loans to help manage the drought, wildfires or other disasters. Corn rose today to the highest in 10 months while soybeans increased to the costliest since 2008.
Good Dirt Gone Dry Wilting Corn Crop as Food Costs Rally (Source: Bloomberg)
Tom Flora walked into one of his corn fields in Delphi, Indiana, last week to survey land that until last month he expected would yield a bigger-than-average harvest. Eight rows in, he declared the crop a total loss. “I’ve never seen this,” 63-year-old Flora said as he fingered the wilted brown leaves on a four-foot corn stalk that was half the normal height for this time of year and had cobs almost devoid of kernels. “This is good dirt here, but not this year. It’s too dry. I doubt this will produce anything.” The worst Midwest drought since 1988 is baking farms from Arkansas to Ohio and threatening corn output that the U.S. said last week will be the second-largest ever. The price of the grain used in food for people and livestock is surging at a time when retail-meat costs already are near record highs. Global food prices are poised to rebound from a 21-month low in June because of weaker-than-expected supply in the U.S., the world’s largest corn exporter, the United Nations said July 5.
With forecasters including AccuWeather Inc. predicting worsening conditions in the next month, corn traded in Chicago surged by $2.665 a bushel since mid-June, or 53 percent. The rally is adding to pressure on the livestock industry because cattle feedlots are already losing as much as $200 an animal. Sanderson Farms Inc. (SAFM), the third-largest U.S. poultry producer, said every 10-cent corn increase boosts costs by $2.21 million.
Crops Rally as Drought Parches Fields; U.S. Stocks Drop (Source: Bloomberg)
Crops led a rally in commodities, with corn reaching a 10-month high and soybeans reaching the priciest since 2008, as the worst drought in a generation parches American farms. U.S stocks fell and Treasuries gained amid concern the global economic recovery is weakening. Corn futures for December delivery jumped 4.4 percent to $7.725 a bushel in Chicago while November soybeans climbed 2.4 percent and soybean-meal futures touched an all-time high. Wheat jumped 4.3 percent to a 17-month high. Oil surged 1.5 percent to $88.43 a barrel and shares of energy producers rose, helping limit the drop in the Standard & Poor’s 500 Index to 0.2 percent. Government debt yields slid to records from the U.S. and Canada to Germany, France and the U.K. amid demand for assets considered most safe. Crops surged amid forecasts that most of the U.S. Midwest will be unusually dry and hot in the next 10 days, threatening to drive food prices to record highs.
T-Storm Weather LLC in Chicago said July is on pace to rank as the third driest and warmest in 118 years of data. Gains in Treasuries and losses in stocks followed a reduction in the International Monetary Fund’s forecast for global growth in 2013 and an unexpected decrease in U.S. retail sales. “The crops are shrinking daily, and the market is pricing in the risk for less available supply for export and domestic usage,” Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana, said in a telephone interview. “The path of least resistance is for higher prices until the crops get enough rain to stabilize yields.”
Corn, oil divergence is bad news for US ethanol
NEW YORK, July 12 (Reuters) - Soaring corn futures and stagnating oil prices spell disaster for the U.S. ethanol sector this summer. A repeat of the industry's financial troubles from a few years ago cannot be ruled out.
US corn futures have soared as evidence has mounted that drought conditions will devastate this year's crop. Front-month corn futures have jumped 15 percent since the end of June.
Wheat Market Recap Report (Source:CME)
September Wheat finished up 36 3/4 at 884 1/2, 4 1/2 off the high and 28 1/4 up from the low. December Wheat closed up 35 1/4 at 897 3/4. This was 26 3/4 up from the low and 4 off the high. September Chicago wheat traded sharply higher into the closing bell after new contract highs were made earlier in the session. Kansas City and Minneapolis wheat made new highs on the day. Wheat saw support from a threatening weather forecast in the US Midwest and on production concerns in the Black Sea and Australia. Russia's Farm Ministry sees Russia's wheat crop at 45 million tonnes vs. the current USDA estimate of 49 million tonnes. Private exporters in the US also sold Japan 107,214 tonnes of wheat for export in 2012/13 crop year. Export inspections for the week ending July 12th were pegged at 14.913 million bushels. Inspections are now 9.6% of the current USDA estimate for 2012/13 and need to average 23.4 million bushels per week to meet the USDA estimate. Chicago wheat spreads firmed today as the market believes demand will shift to the US market in the second half of the crop year. Spillover support from corn pushed wheat to new highs and outside markets provided a positive tilt with the US Dollar trading slightly lower on the day. September Oats closed up 7 3/4 at 380 1/4. This was 5 1/4 up from the low and 5 3/4 off the high.
Pro Farmer: After the Bell Wheat Recap (Source:CME)
Wheat futures closed 30-plus cents higher at all three exchanges in the nearby contracts, which was good for a high-range close. Early support came on spillover from the corn market, as traders recognize wheat has become a competitive feed alternative to corn. September Chicago wheat widened its premium to September corn futures today.
Corn Market Recap for 7/16/2012 (Source:CME)
September Corn finished up 36 1/4 at 776 3/4, 3 1/2 off the high and 27 1/2 up from the low. December Corn closed up 32 1/4 at 772 1/2. This was 23 1/4 up from the low and 5 1/2 off the high. December corn traded sharply higher into the closing bell and settled near the high end of it's daily trading range. The western Corn Belt weather forecast looks very threatening through next week with 95-102 temperatures and mostly dry weather. The two week forecast calls for warm temperatures and below normal rainfall, which will likely continue to stress the Midwest corn crop. Traders see another 3-5% decline in crops rated good to excellent for this afternoon's weekly update. Traders see decent coverage of near 1/4 to 1/2 inch of rain this week and about the same for next week favoring areas to the north and east of the central Corn Belt. Ethanol margins for the average Iowa producer for the week ending July 13th were reported at.016 cents/bushel. This is up from a loss of over.50 cents/bushel the week prior. The sharp increase in ethanol margins were due to sharply higher ethanol futures and stronger DDG prices. Export inspections for the week ending July 12th were reported at 21.732 million bushels as compared with 32 million average needed each week to reach the USDA forecast for the season. Threatening weather and declining yields continue to support corn prices in the short-term as the long-term demand outlook remains weak. Further losses were reported for Ukraine grain crops due to weather and Nebraska officials told producers on Friday to end irrigation due to drought conditions. Corn dipped midday on profit taking but rallied into the close after one analyst cut their average corn yield from 153.50 bushels/acre to 142.50. Many traders see average yield dropping well below 140 if the two-week forecast of hot and mostly dry weather verifies. Outside markets provided a slightly supportive tilt with the US Dollar trading lower and crude oil positive on the day. September Rice finished up 0.355 at 15.64, 0.07 off the high and equal to the low.
Pro Farmer: After the Bell Corn Recap (Source:CME)
Corn futures closed 30-plus cents higher in the September through March 2013 contracts, with the May and July 2013 contracts not far behind. Far-deferred months posted gains mostly in the 10- to 12-cent range. Funds bought an estimated 20,000 contracts (100 million bu.) of corn today. Traders continue to actively build premium into the market amid deteriorating crop conditions and declining yield potential.
US new-crop corn, soy hit contract highs on weather woes
SINGAPORE, July 16 (Reuters) - Chicago new-crop corn jumped 4 percent while soybeans gained about 2.5 percent with both markets climbing to contract highs on forecasts of more stressful hot weather in the U.S. grain belt this week.
"Strong gains reflect the ongoing supply issues in the U.S. as forecasts of high temperatures over the week will lead to further deterioration in corn and soybeans yield potential," said Luke Mathews, a commodities strategist at the Commonwealth Bank of Australia.
Russia sticks to crop f'cast, grain exports may be cut
MOSCOW, July 16 (Reuters) - There is no reason for major revisions to Russia's new-season grain crop forecast but grain export numbers may be revised lower if bad weather continues, Agriculture Minister Nikolai Fyodorov said on Monday.
The latest forecast envisages wheat crop harvest at 46-49 million tonnes in the new season, revised recently from an earlier 57 million tonnes.
India faces challenges in sustaining grains output-farm minister
NEW DELHI, July 16 (Reuters) - India is facing challenges in sustaining grains output due to poor monsoon rains, Farm Minister Sharad Pawar said on Monday.
India's crucial monsoon rains have been below average since the start of the season in June though they were one percent above average in the past week due to an improvement in central India.
U.S. crops wilting despite scattered Midwest rains
CHICAGO, July 14 (Reuters) - Scattered rains over the last 24 hours provided little relief for U.S. Midwest corn and soybean crops that are rapidly deteriorating in the worst drought since 1988, and the forecast is for scant rain for the next two weeks, meteorologists said on Saturday.
"Overall the rain yesterday won't put a dent in the drought because they were spotty hit or miss kind of rains. Certainly some isolated areas will benefit, but it was not a significant drought buster," said AccuWeather meteorologist Dan Pydynowski.
Argentine wheat sowing slowed by cold, dry weather
BUENOS AIRES, July 13 (Reuters) - Dry, cold weather slowed Argentine wheat planting last week as farmers struggled to penetrate their frost-covered fields, the government said on Friday, further complicating a season marked by low output expectations.
Argentina is the world's No. 6 wheat exporter and principal supplier to neighboring Brazil. But plantings are set to fall 17 percent versus the previous crop year to 3.82 million hectares.
Coffee edges higher, eyes on Brazil, cocoa steady
LONDON, July 16 (Reuters) - Coffee futures were slightly higher supported by concerns over the impact of wet weather in Brazil both on the quality of the crop currently being harvested and the development of next season's crop, while cocoa and sugar markets were steady. Coffee futures edged higher in early trade as quality concerns remained in top producer Brazil following unseasonably wet weather over recent months.
Brazil cane crop delays may boost yields -Czarnikow
LONDON, July 16 (Reuters) - Delays in harvesting of the sugarcane crop in the centre-south of top producer Brazil are likely to boost yields, commodities house Czarnikow said on Monday.
Brazil's cane crush this year is around 50 million tonnes of cane behind last year's following wet weather and planned delays to the crushing season.
India coffee up on good export demand
MUMBAI, July 16 (Reuters) - Coffee prices in India rose in the auction held on Thursday, helped by firm export demand, auctioneer J. Thomas & Co said in a statement.
"Exporters were active on arabica plantation, arabica cherry and robusta parchment premium grades on offer," the statement said.
Mexico sugar output drops 2.5 pct in 2011/12
MEXICO CITY, July 13 (Reuters) - Mexico produced 5.05 million tonnes of sugar during the 2011/12 harvesting season, down 2.5 percent from the previous harvest, according to figures published on Friday by Mexico's National Cane Workers' Union.
Output for the 2011/12 season was in line with forecasts by Mexico's national sugar committee Conadesuca.
Mexico June coffee exports rise 9.1 pct vs year ago
MEXICO CITY, July 13 (Reuters) - Coffee exports from Mexico rose 9.1 percent in June compared with the same month a year earlier, totaling 321,131 60-kg bags in the month, Mexico's coffee association AMECAFE said on Friday.
Mexican coffee exports through the first nine months of the 2011-12 harvesting season totaled 2.4 million bags, up 18 percent from the same nine-month period during the 2010-11 harvest, AMECAFE said.
Recap Energy Market Report (Source:CME)
September crude oil showed positive reversal action on the session, mounting a come back from early morning lows to register its highest close since May 29th. While a weaker than expected report on US retail sales pressured risk appetites, the crude and product markets were able to stabilize and turn higher. A turn lower in the US dollar and reports of a US Navy ship opening fire on a boat in the UAE supported the turn higher in crude oil prices. Chatter that Chinese officials could be closer to extending another round of monetary stimulus provided an added jolt to the crude oil market throughout the session. Gains in the expiring August Brent crude oil contract also offered the WTI market a modest lift.
Oil Declines From Seven-Week High Amid Global Economic Concern (Source: Bloomberg)
Oil dropped from the highest close in seven weeks in New York amid concern a slowdown in the global economy will curb fuel demand. Futures fell as much as 0.4 percent, declining for the first time in five days. The International Monetary Fund cut its 2013 global economic forecast while a U.S. Commerce Department report showed retail sales unexpectedly slipped in June. A gauge of investor confidence in Germany, the euro area’s biggest economy, probably slid to the lowest level since January, according to a Bloomberg News survey before data today. Oil for August delivery dropped as much as 37 cents to $88.06 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.13 at 9:40 a.m. Sydney time. The contract gained 1.5 percent to $88.43 yesterday, the highest close since May 29. Prices are 11 percent lower this year.
Brent crude for August settlement, which expired yesterday, climbed 1.1 percent to $103.55 on the London-based ICE Futures Europe exchange. The more-active September future rose $1.95 to $103.37. The European benchmark’s premium to West Texas Intermediate closed at $15.12. The IMF cut its 2013 global growth forecast as Europe’s debt crisis slows expansions in emerging markets. Growth worldwide will be 3.9 percent next year, less than the 4.1 percent estimate in April, the fund predicted in an update of its World Economic Outlook.
China oil storage likely to slow from breakneck pace
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
LAUNCESTON, Australia, July 16 (Reuters) - The big question for oil markets in the second half of 2012 is whether China will continue building its stockpiles at the same unprecedented rate of the past six months.
China, the world's second-largest crude user, imported over 600,000 barrels per day (bpd) more than what it refined in the first half, a surplus that's equivalent to about Turkey's daily consumption.
OIL-Brent stays above $102 on China stimulus hopes
SINGAPORE, July 16 (Reuters) - Brent crude held steady above $102 per barrel on optimism over the outlook for demand growth as China's Premier Wen Jiabao said the government would step up efforts to boost the economy of the world's second-largest oil consumer.
"Short-term sentiment should be good for oil as well as other risk assets. It is a combination of two factors -- China's growth coming in in line with expectations and hopes for more measures to boost the economy," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
Yemen says oil exports may resume this week
SANAA, July 15 (Reuters) - Yemen may be able to resume oil exports as planned this week after tribesmen agreed to allow repairs to the country's main crude pipeline, the oil minister said on Sunday.
"Resumption of pumping oil is expected tomorrow if the teams complete fixing the pipeline," Minister Hisham Sharaf told Reuters, adding talks with tribes to allow the repairs to go ahead had been successful.
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