USDA slashes corn yield, production forecast

                                                                                             

By Bill Tomson 

WASHINGTON (MarketWatch) -- The U.S. Department of Agriculture Friday slashed its forecast for corn production this year by about 17% as drought conditions in key growing regions worsened.

Farmers are now expected to produce just 10.779 billion bushels of corn this year, the USDA said in its monthly World Agricultural Supply and Demand Estimates report. That's a sharp drop from the 12.97 billion bushels the agency predicted a month ago and the reduction exceeded expectations from some traders and analysts.

The new forecast puts U.S. corn production at its lowest since 2006, the USDA said.

Corn yields have suffered sharply under the worst drought in decades that now covers more than 60% of the U.S. and nearly all major farming regions.

USDA's new estimate for average corn yield in the U.S. is just 123.4 bushels per acre and that would put it at the lowest level in 17 years. Last month the USDA was predicting the average corn yield at 146 bushels per acre.

Demand for this year's crop is also expected to decline along with production, but the USDA still pushed its forecast for 2012-13 ending stocks lower.

"Ending stocks for 2012-13 are projected at 650 million bushels...and the smallest carryout since 1995-96," the USDA said in the supply and demand report.

The July report predicted ending stocks at 1.183 billion bushels.

Damage to the corn crop is generally seen as irreversible because the crop has already gone through its delicate pollination stage. Timely rains, though, could benefit the U.S. soybean crop that will complete pollination in August.

Still, the USDA has reduced its prediction for U.S. soybean production to 2.692 billion bushels, down from the agency's July forecast of 3.05 billion bushels.

The USDA estimate for average soybean yield dropped this month to 36.1 bushels per acre, down from 40.5 bushels per acre.

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Personal Reflection:                                                         

Decline in the production of corn yield due to drought conditions gave an impact in the supply and demand of corn and also in soybean. The decline in the average production of the food crops that the USDA predicted a month ago was more worst of what the farmers actually produced this month.

This decline in the production would surely have a great response in the price of corn and soybeans. Given that there is a decline in supply, the price would actually decline also. Since the supply will be affected, the number of affected food crops produced will not be enough to supply the demand of the people. Given also the fact that those food crops don’t have close substitutes, and that the market for these food crops are very broad. Eventually, in the long-run, when people still face the same situation they can now think of another alternative or substitute to supply their needs. And thus the decline of the demand of those affected food crops.