Corn plunged by the most in three years after the US Department of Agriculture raised its outlook for yield and production of the top American crop, when most analysts expected a cut.
The agency estimated corn output at about 16 billion bushels, up 1% from last month. Analysts surveyed by Bloomberg, on average, predicted production of 15.73 billion.
Many believed the agency would lower its outlook after searing summer heat and erratic rains created variable field conditions. Instead, in what was the second corn-supply shock in the last two weeks, the agency hiked estimates with its findings based in part on the USDA’s random crop counts, known as objective yield analysis.
With the corn harvest still only about a quarter complete, the estimates are subject to change. But that leaves traders with more supplies to grapple with when potential purchases by China were also awaited.
“The numbers couldn’t get much worse for the corn,” said Charlie Sernatinger, global head of grain at Marex Group Ltd.
Futures dropped as much as 6% to $4.7025 a bushel, the lowest level since Aug. 11, before paring losses.
Corn had started rallying in mid-August as expectations mounted that wild summer weather took a toll on fields. With fighting between Russian and Ukraine disrupting grain exports out of the Black Sea, hopes were raised that some demand could pivot to the US, giving farmers who have been struggling with high costs a better chance at profits.
A downturn in prices also comes as tough economics in rural America has increasingly become a talking point ahead of the midterm elections, as farmers work through the autumn harvest with record diesel prices.
Farm machinery makers such as market leader Deere & Co. also fell following the USDA report, with lower crop prices leaving growers with less cash to spend. The outlook is also bearish for companies selling seeds and chemicals “as affordability and cycle-recovery thesis faces near-term headwinds,” Oppenheimer analyst Kristen Owen said.
Deere dropped as much as 4.5%, while rivals AGCO Corp. and CNH Industrial NV recorded similar declines. Major crop trader Bunge Global SA, crop protection company Corteva Inc. and fertilizer producer Nutrien Ltd. also slid.
The USDA’s corn yield estimate of 181.2 bushels per acre came in above estimates for 177.8, and includes record-high yields in states including top grower Iowa as well as Ohio, Kentucky and Arkansas.
The outlook for soybeans and wheat was generally higher than expected, although more in line with pre-report estimates.
“The beans were ‘neutral’ but nothing is neutral when the grain locomotive takes off in a new direction,” Sernatinger said.
Friday’s data comes after the USDA surprised corn traders at the end of September with a quarterly report on stockpiles that topped analyst expectations. The increasing disconnect has resulted in more volatility in futures markets, and has spurred a growing skepticism of government data among farmers.
Read More: American Farmers Shun USDA Surveys as Trust in Data Erodes
| Prices: |
|---|
|
(Sign up for Business of Food, a weekly newsletter that looks at how the world feeds itself in a changing economy and climate.)