August 3rd, 2012

Commodity Investing – Corn and soybean traders are bullish for a 15th consecutive week on speculation that the drought spreading across fields in the U.S. will spur the government to make more cuts to its production forecasts.

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 34 percent to $16.13 a bushel on the Chicago Board of Trade this year and set a record $16.915 on July 23. Corn gained 23 percent to $7.92 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 1.9 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities gained 4.7 percent. Treasuries returned 2.8 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.

U.S. Ports

The amount of soybeans inspected for export at U.S. ports in the week to July 26 more than doubled from the same week a year earlier to 15.5 million bushels, primarily because of surging sales to China, the USDA said July 30. Inspections of corn tumbled 40 percent from a year earlier.

South American farmers are preparing to plant record grain and oilseed crops. Argentine farmers, spurred on by rains that alleviated a drought, will smash a previous corn harvest record of 22 million tons by reaping as much as 31 million tons in the 2012-2013 season, growers group Crea said July 23. Brazil may harvest its biggest-ever soybean crop in 2012-2013 to surpass the U.S. as the largest grower, according to Agroconsult, a Sao Paulo-based research company.

Costlier crops may curb demand from biofuel producers. U.S. ethanol output slid 12 percent since June 8 and in the week to July 20 reached the lowest level since the Energy Department began tracking weekly data in 2010. Producers are losing about 33 cents on each gallon of ethanol made based on fuel and corn contracts for September, data compiled by Bloomberg show. More U.S. corn went to ethanol refineries than into livestock feed in 2010-11 for the first time ever.

Ethanol Business

Archer Daniels Midland Co. (ADM), the world’s largest corn processor, reported July 31 fiscal fourth-quarter profit that missed analysts’ estimates as its ethanol business swung to a loss. Declining crop supplies are boosting costs for companies from Decatur, Illinois-based ADM and Smithfield Foods Inc. to McDonald’s Corp. and The Coca-Cola Co.

In other commodities, four of 13 traders and analysts surveyed by Bloomberg expect raw sugar to climb next week and four were bearish. A further five predicted little change. The commodity slipped 5.6 percent this year to 21.98 cents a pound on ICE Futures U.S. in New York.

Nine people surveyed said copper will rise next week and eight predicted a drop, while four were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 3.7 percent to $7,318.50 a ton this year.

Central Banks

Thirteen of 27 traders and analysts surveyed said gold would increase next week, eight were bearish and six were neutral. Futures on the Comex exchange in New York added 2 percent since the start of January to $1,599 an ounce, after 11 years of gains. Holdings in bullion-backed exchange-traded products are about 0.7 percent below the record 2,413.6 tons reached July 5, data compiled by Bloomberg show.

Federal Reserve Chairman Ben S. Bernanke pledged to boost measures to support the economy on Aug. 1, while refraining from announcing new stimulus measures. The European Central Bank left interest rates at a record low yesterday. The ECB is seeking to quell Europe’s debt crisis, which is threatening to cripple Spain and Italy and splinter the 17-nation monetary union.

“To support commodity demand and prices, a higher degree of stimulus is needed,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “European Union austerity measures and unsolved debt problems will cap commodity prices due to slower demand growth.”

Gold survey results: Bullish: 13 Bearish: 8 Hold: 6
Copper survey results: Bullish: 9 Bearish: 8 Hold: 4
Corn survey results: Bullish: 12 Bearish: 6 Hold: 3
Soybean survey results: Bullish: 14 Bearish: 7 Hold: 0
Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 5
White sugar survey results: Bullish: 4 Bearish: 4 Hold: 5
White sugar premium results: Widen: 5 Narrow: 2 Neutral: 6

- Nicholas Larkin and Whitney McFerron in London at Bloomberg.