Corn gives up gains after poor harvest forecast
CHICAGO (MarketWatch) -- Corn futures ended lower Wednesday, giving up steep gains after the U.S. Department of Agriculture said recent hot weather would likely slash this year's corn harvest.
The USDA report, released early Wednesday, detailed a 12% reduction in acreage yield, on what had been a record-breaking planting for corn this spring.
The yield estimate dropped 20 bushels an acre to 146 bushels. The USDA attributed the loss in the yield estimate to "persistent and extreme June dryness," and "extreme late June and early July heat."
Corn for December delivery (CZ2) , the most active contract, rose to as high as $7.48 a bushel before turning lower, settling down 13 cents, or 1.9%, at $7.04 a bushel on the Chicago Board of Trade.
"There is no doubt that the report confirms what people are seeing in the fields," said Mitch Kasper, a principal with Midwest AG Investors. High temperatures and near-drought conditions have driven up prices recently, especially since Monday, when futures traded at the exchange's upper limit.
Yet there were some positive signs from some farms, Kasper said.
"Some of the lower quality, light soil farms are suffering the worst, with yields down 50% or more. Higher quality soils are faring better than average," said Kasper, whose firm consults with Midwest farmers.
Simple profit-taking after corn rallied 36% from the start of June may also have contributed to the day's reversal.
"A lot of news outlets are covering it, and sometimes when things reach a fever pitch," highs in trading occur, said Jason Britt, an analyst for Central State Commodities.
"It's always a head-scratcher for the public if we close lower on the day," said Britt.
Stoking prices over the last several weeks were expectations of tighter supplies.
It's a "fairly unprecedented lowering of the yield," said Britt. "Markets are strictly trading the production side," he said. "We'll look at the demand destruction, but that'll come later."
In addition to investor concerns about crop yields, there's also the issue of harvested acres, or the number of acres that are eventually harvested.
"When yields decline, many areas are not harvested at all and so the market fears 1-2 million acres of corn may eventually be taken out of the supply side on the balance sheet," said Austin Damiani, a market analyst for Frontier Futures in Minneapolis. "So many in the trade think that even after accounting for yield loss, the balance sheet may tighten further."
Exchange-traded funds in corn saw mixed reactions to the USDA report. The Market Vectors-Agribusiness ETF(MOO) was up 0.7% Wednesday. The
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