Corn, wheat rise as traders expect yield cuts

August 9th, 2012


Category: Grains, Oilseeds

(MarketWatch) — Corn, wheat and soybean futures rose Wednesday ahead of a U.S. Department of Agriculture monthly production report that is expected to show more downside for crop yields.

Corn for December delivery CZ2 +0.89% , the most active contract, gained 16 cents, or 2%, to $8.17 per bushel on the Chicago Board of Trade.

The December contract is up nearly 40% for the year.

Front-month September corn CU2 +0.99% , the front-month, gained 15 cents to $8.11 a bushel.

November soy futures SX2 +0.78%  rose 2 cents to $15.81 per bushel on the CBOT.

September wheat futures WU2 +0.78% turned higher mid-session, and ended 10 cents higher at $8.99 per bushel on the CBOT.

Investors were cautious, and tried to avoid going either too long or too short in the run-up to Friday’s USDA report, said Jason Britt, an analyst with Central State Commodities in Kansas City, Mo.

“They’re worried about what the USDA is going to say,” he said.

Investors don’t know what to expect in terms of updated crop yields for corn, soy, and wheat. However, due to high summer temperatures and drought conditions for much of the Midwest, expectations for crop yields are already low.

“We expect a bullish report for the grains with further downside likely for U.S. corn and soybean yields, and shaky global wheat supplies,” analysts with Morgan Stanley said in a note to clients on Wednesday.

The U.S. Drought Monitor, run by the USDA and the University of Nebraska-Lincoln, estimates that 80% of the contiguous United States is experiencing drought conditions, up from 40% of the country in May.

The lack of rain has proved disastrous for the corn crop, which needed rain during its pollination period earlier this summer. Yield estimates have fallen steadily since the start of July due to the lack of sufficient rain, even though a record acreage of corn was planted.

The drought early in the growing season wasn’t as detrimental to soy yields as it was to corn yields. However, the continued lack of rain has withered soybean crops, and its yield estimates have also fallen.

The wheat crop so far has been the least affected by the severe summer weather, because its growing season is very different from corn and soy.

Wheat is planted in two rotations, with spring wheat harvested in early summer, and winter wheat harvested in late fall. Spring wheat was harvested before the harshest weather hit, and winter wheat is just now being planted, which means it also avoided the July heat wave.

Although wheat farmers still have to contend with dry soil and higher-than-average temperatures, they weren’t unexpectedly hit by the conditions, as some corn and soy farmers were in July.

Taylor Thomas is a MarketWatch reporter, based in Chicago.

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