The U.S. corn crop looks to have escaped heavy damage from massive flooding in the Midwest in June, the U.S. Department of Agriculture said Tuesday in issuing a rosier-than-expected projection for this year's harvest.
The USDA said that farmers would harvest 4.9% more corn than its estimate in July and that market prices would be lower than projected.
Some analysts said that would help ease food price inflation and reduce the financial pressure on ethanol refiners, which are becoming an important segment of the U.S. fuel market.
The USDA now expects that cash prices for corn during the marketing year that starts Sept. 1 will average $5.40 a bushel, down from $6 projected in July. However, September corn futures rose 11 cents to $5.09 a bushel Tuesday. Still, that was 35% off their peak of $7.88 on June 26.
Some analysts believe that the USDA is overestimating the health of the current crop and that it will have to cut its projections in coming months.
"Price could start to rise again in October or November as people begin to realize that the harvest is coming up short," said Gail Martell, a Milwaukee-based agriculture analyst for Storm Exchange Inc., a weather-hedging firm.
Corn has taken an increasing role in the national economy in recent years because of its dual role as a source for auto fuel and its ubiquitous use in the food industry. The grain is the major feed source for livestock and is an ingredient in foods as disparate as yogurt, soda, cereals and ketchup. Corn is also a major export item.
The USDA estimated that the crop would total 12.3 billion bushels, up from 11.7 billion projected a month earlier; that would make the harvest the second-largest on record. The upward revision from a month ago comes after heavy flooding in the Midwest delayed planting at some farms and threatened crops already in the ground.
An analysis of satellite imagery by Lanworth, a natural resource information company in Itasca, Ill., supported the USDA revision, said Nick Kouchoukos, Lanworth's director of information services.
Still, farmers are expected to harvest about 79 million acres, about 8% less than last year. But because the USDA expects the plants to produce more corn per acre, the crop should see only a 6% decline from the prior year, the government said.
The arguments over the size of this year's harvest come at a time of rising demand from ethanol producers and export partners looking to gobble up the grain for foreign feed supplies.
The USDA projects that about 4.1 billion bushels, or a third of the crop, will be used for ethanol.
"I am not surprised that U.S. farmers surpassed the projections made last month," said Ken Hobbie, president of the U.S. Grains Council. "U.S. farmers are undoubtedly, indisputably the very best at what they do and are very familiar with this volatile business. Despite the devastation they endured, they rose to the task of generating a reliable supply of grains."
One reason for the higher crop estimate was that farmers were expected to harvest more corn per acre, thanks to improved growing techniques and decent weather since the flooding.
Analyst Martell, however, believes that the government doesn't have a good understanding of how the heavy rains and flooding will ultimately affect the crop. She said that in 1993 and 1995, both high rainfall years, the USDA overshot on its corn yield estimates by as much as 15%.
"The extreme wetness that we had this year creates trauma for the plant. We could see stunted growth and less productive plants," Martell said.
Although the USDA believes that farmers will harvest an average of 155 bushels of corn per acre this year, Martell believes that the true number will be closer to 143.
Other farm interests also said they were concerned about the size of the corn crop.
"The robust harvest predicted by USDA hinges on no early frost harming the significant portions of the corn crop that are developing late because of the Midwest floods," said Joel Brandenberger, president of the National Turkey Federation.
"Second, it indicates that ethanol demand is increasing by 36% from 2007," he said. "Given that ethanol is continuing to divert an ever larger share of our corn supply away from feed and food, even a harvest like the one predicted by USDA may not be enough to prevent continued food inflation and to avoid additional harm to family farmers who raise meat and poultry."
The USDA also projected a robust soybean crop of nearly 3 billion bushels, up 15% from last year. Farmers have planted more soybeans this year, attracted by high prices for the crop.