July 11 (Bloomberg) -- The U.S. cut its corn-harvest estimate 12 percent and said inventories next year will be smaller than forecast in June as the worst Midwest drought since 1988 erodes prospects for a record crop.
Farmers will harvest 12.97 billion bushels (329.45 million metric tons), down from a June prediction of 14.79 billion, the U.S. Department of Agriculture said today in a report. Analysts expected 13.534 billion, based on the average of 14 estimates in a Bloomberg survey. Inventories before the 2013 harvest may be 1.183 million bushels, down 37 percent from 1.881 billion forecast last month, the USDA said.
Corn prices through yesterday surged 42 percent since mid-June on the Chicago Board of Trade as areas of moderate to extreme drought expanded to 53 percent of the Midwest. Crop conditions as of July 8 were the worst for that date since the drought of 1988, government data show. Tighter supplies than expected may boost costs for ethanol makers including Archer Daniels Midland Co. and meat producer Smithfield Foods Inc.
“The drought of 2012 will be one for the records,” said Peter Meyer, the senior director for agricultural commodities at PIRA Energy Group in New York, who forecasts a drop in output to 11 billion bushels if the hot, dry spell lasts another three weeks. “Whether it’s ethanol or livestock, no one is immune from this impending disaster. The ramifications will be widespread, affecting everything from your food to your gasoline.”
Corn futures for December delivery dropped 1.7 percent to close at $7.175 a bushel yesterday in Chicago. On July 9, the price reached $7.33, the highest for the most-active contract since Sept. 13.
Reserve supplies in the U.S., the world’s largest grower and exporter, on Aug. 31, 2013, will be below the 1.216 billion expected on average from 31 analysts surveyed by Bloomberg News.
Prices have rallied in the past week as a record heat wave blanketed the Midwest just as 50 percent of the crop was trying to pollinate. About 40 percent of the crop was in good or excellent condition as of July 8, down from 77 percent on May 18, government data show.
Yields near Decatur, Illinois-based Archer Daniels Midland, the biggest corn processor, already are expected to be 20 percent smaller than the five-year average of 175 bushels an acre, said Scott Docherty, the general manager at Topflight Grain Cooperative based in Monticello, Illinois. Yields in the region may dip to 115 bushels an acre if the dry weather continues into August, he said.
Farmers may harvest 88.9 million acres of corn this year, compared with 84.0 million in 2011, the USDA said. National yields will average 146 bushels an acre this year, down from a record 166 bushels estimated in June, according to the government, which will release its first survey- based crop estimate on Aug. 10.
“We had a great start, but last week’s heat really damaged the crops,” said Docherty, who manages 10 grain terminals in an area that covers about 200,000 acres of prime Midwest farmland. “Some farmers are not going to harvest one bushel this year. It’s very disappointing.”
World output in the crop year that begins Oct. 1 will be 905.23 million tons, down from 949.93 million forecast in June, the USDA said. World production last year was 873.7 million.
Global inventories on Oct. 1, 2013, will total 134.09 million tons, down from 155.74 million forecast in June and 129.37 million projected for the end of this marketing year, the USDA said. Analysts were expecting 143.8 million tons.
Corn is the biggest U.S. crop, with a 2011 value of $76.5 billion, government figures show.