U.S. Cuts Corn-Crop Forecast

Published in WSJ

Federal forecasters expect record corn prices as a widespread U.S. drought puts the nation on track to have its worst crop in nearly two decades.

The U.S. Department of Agriculture on Friday reduced its estimate for the corn crop by nearly 17% and raised the upper end of its price forecast by 39% to $8.90 a bushel. Forecasters also made a sizable reduction in their outlook for the nation's soybean crop.

The cuts weren't a surprise and fell short of reductions made in response to the last major drought in 1988. The dry conditions have been building for months, with more than 60% of the country facing some level of drought.

The effects of the drought have been rippling through the U.S. economy and raising the outlook for food costs, particularly for meats and poultry that rely on corn and soybeans for feed. It also has reignited the debate over the use of corn to produce ethanol, with some in Congress calling for the federal government to curb requirements for the use of the fuel in the face of the drought.

The USDA in its report said grain exporters and U.S. businesses that use corn will all cut back their consumption. Still, forecasters cut their estimates for supplies a year from now by 45% to 650 million bushels, the lowest level since 1996.

Globally, the agency cut its forecast for corn, wheat and rice supplies. The drop in global wheat output mainly reflected problems with harvests in Russia and Kazakhstan, though estimates were raised for Canada. The expected fall in global rice supplies is seen as outweighing a small decline in consumption, with India and Brazil the focus of reduced output and Chinese production expected to rise.

Damage to the corn crop is generally seen as irreversible because the plants already have gone through their delicate pollination stage. The USDA expects farmers on average to harvest 123.4 bushels of corn per acre this fall, the lowest yield since 1995. The overall crop is expected to be the smallest in six years at 10.78 billion bushels, even after farmers planted the most corn in 75 years this spring.

Timely rains, though, could benefit the U.S. soybean crop, which will complete pollination in August. The USDA does see some damage already done, reducing its prediction for U.S. soybean production to 2.69 billion bushels, down from the agency's July forecast of 3.05 billion bushels.