Corn futures climb on diminished USDA supply forecast

The U.S. Department of Agriculture released its latest estimates regarding U.S. corn production levels this week, surprising analysts who had forecast higher yields. The report sent corn futures up to their highest levels in a week.

The USDA lowered its forecast of U.S. feed grain supplies for the 2011 through 2012 growing season on Monday. In its report, "World Agricultural Supply and Demand Estimates," USDA analysts asserted domestic corn production would likely be lower than prior forecasts, as a result of hot summer temperatures and dry weather that plagued growing regions.

Moreover, the USDA pegged corn production for the upcoming growing season to be 417 million bushels lower than its earlier estimates, with expected yields reduced across much of the Corn Belt. The USDA forecast the national average corn yield at 148.1 bushels per acre, representing a decline of 4.9 bushels from August projections.

"Supplies are going to be tight this year," North American Risk Management Services market analyst Jerry Gidel told Bloomberg News. "Ethanol and livestock producers were buying today because they are worried the crop may get smaller" over the coming months.

On the Chicago Board of Trade on Monday, corn futures for December delivery rose 1.2 percent, or 9 cents, to close at $7.45 per bushel, according to official data.

The USDA report was especially disheartening for analysts who had previously projected crops to rise. Some analysts believed a spate of storms late in the growing season helped to inject a jolt of life into drought-stricken fields, but the latest data indicates otherwise.

According to the USDA report, this year's corn forecast – if it remains at current levels – would serve as the lowest since the 2005 through 2006 growing season. This comes despite the exceedingly high production levels, forecast to be the third highest ever. The USDA said the most recent growing season also comprises the second highest planted area since 1944, making the low yields particularly dire.

The USDA also lowered its expected import forecast for the 2011-2012 growing season by 5 million bushels. Total corn supplies were similarly reduced by 442 million bushels, with the growing season's supplies dipping to the lowest levels since the 2006 through 2007 growing season.