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USDA seen dropping Arg. corn

01/10/2011 @ 2:22pm

CHICAGO (Dow Jones)--The U.S. government on Wednesday is expected to become the latest body to lower its forecast for 2011 corn production in Argentina due to lingering heat and dryness.

The drought in Argentina, the world's second-largest corn exporter, has been a focus of the Chicago Board of Trade futures market, pushing prices sharply higher since late November. The U.S. Department of Agriculture's most recent projection of 25 million metric tons is much too high, some analysts said.

The U.S. Department of Agriculture will release its January supply and demand estimates, which include world and domestic projections, on Wednesday at 8:30 a.m. EST (1330 GMT).

The Buenos Aires Cereals Exchange last week pegged the crop at 20.35 million tons in its first forecast. Rosario Grain Exchange last pegged crop at 21.3 million tons, and Argentina's Agriculture Ministry most recently forecast 26 million.

Analysts surveyed by Dow Jones Newswires expect the USDA to project the crop anywhere from 19 million to 24 million metric tons.

The USDA is typically conservative in changing its crop estimates, analysts said. "USDA is reluctant to change as rapidly as the trade is," said Sid Love, analyst with Kropf and Love Consulting.

Shawn McCambridge, senior grains analyst for Prudential Bache, said he was looking for a decline of a "couple million tons."

The reality is that "it's probably going to be closer to 20 (million) by the time we get done," he said.

Crop losses in Argentina, which will harvest corn and soybeans this spring, likely mean export demand will shift to the U.S., the world's leading exporter of corn and soybeans, analysts said. Importers had been hoping Argentina would produce a big corn crop to compensate for a smaller-than-expected harvest in the U.S. this autumn.

Along with the smaller Argentina crop, analysts are also forecasting a reduction in the U.S. government's estimate of the 2010 U.S. crop and 2010-11 ending stocks, although those cuts are expected to be more modest.

Analysts surveyed by Dow Jones Newswires project, on average, that the USDA will peg the 2010 U.S. crop at 12.491 billion bushels at 153.9 bushels per acre, down slightly from a previous estimate of 12.540 billion at 154.3 bushels per acre.

The crop will be smaller than the 2009 crop, which totaled 13.110 billion bushels at 164.7 bushels per acre. Hot nighttime temperatures and soggy weather in some areas led to the disappointing crop in 2010. Analysts say the USDA typically lowers its crop estimate in January in years when it has lowered it in previous reports, as it did this year.

Meanwhile, analysts say that demand has remained relatively strong, which will prompt the USDA to lower its projected 2010-11 ending stocks.

Analysts on average expect the USDA to project ending stocks at 778 million bushels, down from a December estimate of 832 million and well below the prior year's total of 1.708 million. End stocks are the amount of grain in storage at the end of the marketing year.

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