A scorching drought across the Midwest will slash corn yields by much more than most analysts had expected, the government said in a report that reignited a record rally in grain prices.
The U.S. Department of Agriculture said the crop will average just 146.0 bushels an acre, down 20 bushels from its June estimate.
As a result, the agency reduced its forecast for ending stocks by 37 percent from last month, partly offset by lower exports and less ethanol usage.
The surprisingly deep cut to the yield outlook shocked traders, who had expected the USDA to take a more conservative approach to adjusting its outlook. The reduction in ending stocks was deeper than the forecast for a 32 percent cut.
Corn on the Chicago Board of Trade soared after the release of the report, with the December contract surging 23 cents to $7.40-1/2 per bushel, nearly touching the contract high reached two days ago. Prices have risen 34 percent in the past four weeks.
The 12 percent cut in the yield forecast was the largest in memory, said the chairman of USDA's World Agriculture Outlook Board. Wheat and soybean stocks were also below expectations, with soybean yields also pared due to the drought.
A mild and early planting season raised hopes of a record corn crop. But the drought changed prospects dramatically. USDA projected a harvest of 12.97 billion bushels, 12 percent less than a month ago, but still the third largest on record.
It would bring the third year in a row of tight corn supplies. USDA reduced by 100 million bushels, or 2 percent, its forecast of corn for ethanol.
China was forecast to import 5 million tonnes of corn in the marketing year that opens on Sept 1, down 2 million tonnes, a reflection of smaller global supplies due to the downturn in the United States, the world's largest grower and exporter.
Along with corn, USDA's forecasts of wheat and soybean ending stocks for the 2012/13 marketing year were lower than traders expected. USDA estimated carryover stocks of 664 million bushels of wheat and 130 million bushels of soybeans, compared to trade expectations of 718 million bushels of wheat and 141 million bushels of soybeans.
USDA cut its forecast of the wheat crop in Russia by 4 million tonnes due to poor yields, in Kazakhstan by 2 million tonnes because of hot and dry weather in June, and in China by 2 million tonnes due to lower yields.
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