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USDA to set 2012 market tone

Updated: 01/09/2012 @ 9:10am

The U.S. Department of Agriculture releases its final assessment of last year's crop and the latest data on domestic grain inventories Thursday. The reports have a history of rippling well beyond futures trading at the Chicago Board of Trade, touching a wide range of companies from fertilizer producers such as Mosaic Co. to chicken processors such as Pilgrim's Pride Corp.

The reports will drive how many acres U.S. farmers will plant come spring and what crops they choose to grow. That trickles down to raw-materials costs for food makers such as Kraft Foods Inc. and Sara Lee Corp. and what consumers pay at the supermarket.

"It's definitely going to set the tone for 2012," said Peter Meyer, a New Jersey-based agribusiness consultant and publisher of farm commodity newsletter Opening Print.

The USDA reports have a history of immediately jolting grain markets. In each of the last five years following the release of the January reports, corn futures have either risen or fallen to the exchange-imposed limit on one-day price moves.

Traders and corporate executives will look most closely at the inventory report. It comes out only quarterly and provides a snapshot of actual U.S. supplies of corn, soybeans and wheat rather than forecast.

The last report, released Sept. 30, showed supplies of corn were larger than expected, and prices by the next week hit a nine-month low. The reports alter longer-range plans for agriculture companies as crop prices influence buying habits of farmers for seed, fertilizer and even tractors.

Mosaic Chief Executive Jim Prokopanko said a fall swoon in corn prices made fertilizer dealers wary of adding inventory. With the price of phosphate falling sharply, the company announced in late December it would cut production.

"Our fertilizer pricing forecast is largely driven by corn prices," he said.

The report also can hint at food prices for the year ahead. Last January, the reports stoked fears corn supplies could fall to historic lows as the 2010 harvest disappointed and global demand drained U.S. stockpiles. Food prices increased over the next 12 months, with the USDA projecting consumer prices for food rose 3.25% to 3.75% in 2011.

The agency is forecasting a jump of 2.5% to 3.5% this year. That's slightly above the historical average for the past two decades.

With so much attention put on this week's report, grain traders and buyers have become increasingly critical of the data, which they say has become highly unpredictable.

Analysts say the USDA's task has gotten more difficult in recent years. With a huge jump in the production of corn-based ethanol, many livestock producers are feeding their animals a byproduct of the biofuel rather than just the corn itself. That is helping to muddy overall grain demand. Meanwhile, many farmers have increased how much grain they can store on their own farms instead of bringing it to local elevators. That has made it more difficult for the USDA to figure out exactly how much grain is in the countryside.

"Anyone that has a position in this market is generally worried going into this report," said Terry Reilly, an analyst with Citi.

(END) Dow Jones Newswires
January 08, 2012 20:11 ET (01:11 GMT)
DJ WSJ(1/9) Tracking Crops And Commodity Prices->copyright

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