US corn, soyabean crops seen heading for record highs, putting pressure on prices

Chicago

US corn and soyabeans crops are heading for record highs again, threatening to erode farmer income further and hamper agriculture credit conditions.

The US Department of Agriculture said Friday in its monthly World Agricultural Supply and Demand Estimates, or WASDE, report that corn output will rise 11 per cent this season from a year earlier, while soyabean production will increase 3.3 per cent, topping projections by analysts. That quickly sent corn futures to the lowest since October 2014 and soyabeans down more than 2 per cent. Investors reconsidered demand prospects later in the session, and prices bounced higher.

Corn, the biggest US crop, is heading for the fourth straight annual price decline. In reports this week, Federal Reserve banks in Chicago, St Louis and Kansas City signalled a dim outlook for a bottom to the slumping agriculture economy. Low commodity prices have "subdued" farm profits, worsened agricultural credit conditions and weakened farmland values, the Kansas City Fed said.

"This is one of the most bearish crop-production estimates for the US we have seen in a while for a USDA August report," Terry Reilly, senior commodity analyst at Chicago-based Futures International LLC, said in a note.

"Traders seen to have already worked in the large production figures. We look for volatility to continue to fall over the next week."

After the WASDE report at 11 am local time, corn futures for December delivery on the Chicago Board of Trade fell as much as 2.8 per cent to US$3.225 a bushel, the lowest for a most-active contract since Oct 3, 2014. The price rallied late in the session to close at US$3.33, up 0.4 per cent. This year, the grain has dropped 7.2 per cent.

Soyabean futures for November fell as much as 2.2 per cent following the USDA report. The price closed down 0.2 per cent at US$9.8175 a bushel. This year, the oilseed has climbed 14 per cent, partly on robust demand for US exports.

Alongside the bearish crop-supply data, the USDA published some bullish demand figures. US beef, pork and poultry production will rise 2.8 per cent in 2017, and milk output will climb 1.7 per cent, the government said. The livestock industry is one of the biggest consumers of grain and oilseeds for animal feed.

"Demand is really quite strong right here," Ted Seifried, chief market strategist at Chicago-based Zaner Group LLC, said in a phone interview. "We've got big production numbers, but big demand numbers."

Corn production will jump to 15.153 billion bushels this season, and soyabean output will climb to 4.06 billion, the USDA said. Both forecasts surpassed the highest estimates by analysts in Bloomberg surveys.

The US is the world's largest grower of both crops. The latest production estimates are the first of the season that the USDA compiled based on a survey of field samples and farmer interviews. BLOOMBERG