Crop ‘Shocker’ Ripples Through Markets


This article is from the Wall Street Journal.

Government forecasters cut their estimates for the U.S. corn harvest Friday, with the prospect of tighter supplies triggering a surge in futures prices and a rally in shares across the agribusiness sector.

The U.S. Department of Agriculture forecast lower yields from what is still expected to be the third-largest harvest on record, but carry-out stocks are projected to be below the symbolic level of one billion bushels.

Futures on corn, soybeans and wheat all rose to their daily trading limits, while shares in tractor makers and fertilizer producers soared on the prospect of higher farm incomes. The food and meat sectors saw sharp slides in share prices because of higher animal-feed and raw-material costs.

USDA shaved a record 6.7 bushels per acre from last month’s corn-yield estimate, and now projects 155.8 bushels an acre from the national harvest. The consensus among analysts was for 159.9 bushels an acre.

“Shocker may be an understatement,” said Jason Britt, president of Central State Commodities, a Kansas City brokerage. “It’s very out of character for the USDA to lower the corn yield so much.”

The USDA was projecting a record corn crop as recently as August, but farmers have been disappointed as the harvest progressed. The plants suffered from excessive early-season rains that washed away nitrogen, a crucial nutrient. Crops also were stressed by unusually hot overnight temperatures during the summer.

Other agricultural commodities followed corn higher. Wheat and soybeans surged in part because both, like corn, serve as an animal feed. Livestock futures also climbed because feed is a major cost for producers.

“This is a very tight balance sheet we now have to live with for a long time,” said Sal Gilbertie, lead manager of the Teucrium Corn Fund, an exchange-traded fund based on corn futures.

CF Industries Inc., the fertilizer maker, led the rally in agribusiness stocks, with its shares recently up almost 13{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} at $111.34, its highest level since the end of the commodity market boom-and-bust in 2008. Monsanto Co. was 6{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} higher $51.76 and equipment makers all rallied. Deere & Co. also hit a two-year high, recently trading up 6.6{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} at $76.60.

Meat processors were hit hard, with investors concerned about rising costs and a possible challenge to the supply discipline that has helped the sector return to profitability after being buffeted by the 2008 commodity boom.

Tyson Foods Inc. was recently down 7.4{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} at $15.08, with Smithfield Foods Inc. off 6.3{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} at $15.04.

While many traders and analysts could see this year’s corn crop yield drifting down to 155 bushels an acre, few expected the USDA to make such an aggressive revision so soon. The U.S. harvest is roughly 50{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} complete.

U.S. corn futures soared to a daily trading limit on the Chicago Board of Trade when the market opened, rising 30 cents, or 6{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4}, to $5.82 1/4 a bushel, near a two-year high. Soybean and wheat futures also hit their exchange-imposed trading limits at the market opening.

Analysts said Friday’s report reignites concerns that the market needs higher prices in order to discourage demand and stave off a supply crisis. The report could have other ramifications, since the government has yet to rule on a request to increase the amount of ethanol that can be blended in gasoline to 15{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} from 10{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4}.

“This could (heighten) the debate on moving ethanol blends higher, and ‘food versus fuel,’” Mr. Britt said.

—Bob Tita, Curt Thacker and Lester Aldrich contributed to this report.


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