Bull market in crops extends with spreading drought

The survey says...

Dry, cornfield Dry, cornfield

Aug. 3 (Bloomberg) -- Corn and soybean traders are bullish for a 15th consecutive week on speculation that the drought spreading across fields in the U.S. will result in more production cuts.

Fourteen analysts surveyed by Bloomberg predicted soybeans will climb next week and a further seven were bearish. Twelve expect gains in corn, six saw a decline and three anticipated little change. Hedge funds are holding the biggest bet on higher corn prices since September and almost the largest wager on costlier soybeans since at least 2006, U.S. Commodity Futures Trading Commission data show.

Moderate to exceptional drought had spread across 63 percent of the contiguous U.S. by July 31, the U.S. Drought Monitor, based in Lincoln, Nebraska, said yesterday. The U.S. Department of Agriculture cut its forecast for the world’s biggest corn harvest by 12 percent last month and its outlook for the soybean crop by 4.8 percent. It next reports Aug. 10 and INTL FCStone Inc., Goldman Sachs Group Inc. and Rabobank International have said they expect output to drop further.

“Corn already has had damage taking place and we’ve seen a sizable cut in harvestable acres and yields,” said Sudakshina Unnikrishnan, an analyst at Barclays Plc in London. “The soybean market still is very, very nervous because the supply side scenario is a lot tighter.”

Record Prices

Soybeans rose 33 percent to $16.10 a bushel on the Chicago Board of Trade this year and set a record $16.915 on July 23. Corn gained 22 percent to $7.9175 a bushel, reaching an all-time high of $8.205 on July 31. CME Group Inc., the world’s largest futures market, said trading of agricultural commodities jumped 46 percent in July from a year earlier.

The Standard & Poor’s GSCI gauge of 24 commodities declined 2 percent since the start of January and the MSCI All-Country World Index of equities gained 4.8 percent. Treasuries returned 2.5 percent, a Bank of America Corp. index shows.

The USDA cut its U.S. corn harvest outlook to 12.97 billion bushels and reduced its soybean projection to 3.05 billion bushels on July 11. Corn output may be 11.043 billion bushels, the lowest since 2006 and 25 percent below the government’s June forecast for a record crop, FCStone said Aug. 1. The soybean crop will be 2.73 billion bushels, it said. Credit Suisse Group AG and Morgan Stanley have said crop yields will probably be lower than current USDA forecasts.

North Dakota

Twenty-four percent of the U.S. corn crop and 29 percent of soybeans were in good or excellent condition as of July 29, the lowest rating for the date since 1988, a year when drought slashed the nation’s corn harvest by 31 percent, USDA data show. Drought will persist in the Midwest through October and spread in parts of North Dakota and Texas, the Camp Springs, Maryland- based U.S. Climate Prediction Center said yesterday.

Heat waves in Europe are also damaging crops from Italy to Russia. Grain output in Western Australia, the country’s biggest wheat grower, may drop 40 percent because of dry weather and frost, according to CBH Group, the state’s biggest handler. As many as 400 of India’s 627 districts received lower-than-average rainfall this year, Farm Minister Sharad Pawar said July 31.

China may import a record 61 million metric tons of soybeans in the 2012-13 season, 6.1 percent more than a year earlier, with corn shipments unchanged at 5 million tons, the USDA said July 11. The Asian nation is the biggest soybean consumer and second-largest user of corn, after the U.S.

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