Corn futures surged on Tuesday after the US Department of Agriculture (USDA) cut its production estimates for the crop. Traders were surprised by a larger-than-expected reduction. Corn prices rose by as much as 3.7% in Chicago, marking the largest gain in three months. The USDA projected national corn production at 15.893 billion bushels, down from its previous outlook and below analyst estimates, according to Bloomberg.
Key Details
Soybean prices also increased sharply. The USDA raised its soybean production estimate to a record high of 4.57 billion bushels. This contributed to a rise in soybean futures of up to 3.6%. The agency also increased its forecast for US soybean exports. It cited larger supplies and a strong early-season export pace. The top global buyer, China, is expected to fulfill its annual commitment to purchase 25 million tons of US soybeans.
Background
The USDA's report indicated tighter supply forecasts for both corn and soybeans. End-of-season stocks for corn were revised down by 15 million bushels. This was a reversal from previous reports that showed unexpectedly large stockpiles, which had pressured prices lower. Analysts noted that the USDA's adjustments reflected increased domestic and export demand. This demand outweighed production increases. Ted Seifried, chief market strategist at Zaner Ag Hedge, stated, "They were able to increase demand more than the increase in production."
Related coverage: Indian Equities Rally Amid US Midterms and Oil Price Drop, European Stocks Shift After US Midterm Elections Results.
The USDA's cuts to corn yield and production are likely to support grain prices. This will benefit farmers facing high input costs. Increased volatility in the agricultural commodities market is expected, particularly for corn and soybeans. Shares of agricultural machinery companies, such as Deere & Co. and AGCO Corp., may also see upward movement as grain prices rise.
Watch for further updates on USDA reports and their impact on crop prices as the season progresses.
Based on reporting by: livemint.com