(Bloomberg) — Corn surged the most in three months after the US Department of Agriculture surprised traders with a bigger-than-expected cut to yield and production of America’s most widely grown crop.
While a small trim in USDA’s monthly supply and demand outlook was anticipated, the scale of the reduction caught traders off guard, with futures in Chicago rising by as much as 3.7% after the report was published.
Farmers have been complaining about the accuracy of the agency’s reports — and also replying less to surveys that are used by the USDA to produce the data. Tuesday’s report is the third time to spark increased volatility since the end of September. Such turbulence in USDA reports has prompted efforts at the agency to modernize.
The USDA pared back yields in key corn-growing states including Illinois, Indiana and Nebraska, estimating national production at 15.893 billion bushels. That’s down from an October outlook and below an estimate in a Bloomberg survey. The numbers are a reversal from recent reports that showed unexpectedly large stockpiles, such as one last month that sent prices tumbling.
“The market finally got its production cut,” said Giovana Cavalca, grains research analyst at Amius.
Still, any gains in grain prices will be welcomed by farmers who have been navigating high costs for diesel and fertilizer that make it difficult to profit when crop prices are relatively lower. Shares of farm machinery makers Deere & Co. and AGCO Corp. briefly turned higher after the report.
USDA lifted its soybean production estimate to a fresh record high of 4.57 billion bushels. Futures for the beans gained as much as 3.6%, the most since July, as the agency also hiked its estimate for American soybean exports, “based on larger supplies and early-season export pace.”
Top global buyer China is on track to meet an annual purchase commitment for 25 million tons of US soybeans, although the Asia country has made little progress in a separate pledge to buy $17 billion in agriculture products.
President Donald Trump and his Chinese counterpart Xi Jinping are expected to meet later in November. China also extended a pause on additional tariffs on US goods, although existing tariffs on US soy imports mean that most supplies are going into government reserves.
The American Soybean Association said that while it was “pleased” by the purchase commitments, the existing 10% tariff gives an added advantage to South American imports in China, according to a Tuesday letter from the group.
“We urge the Trump Administration to pursue a long-term arrangement through which US soybeans may regain access to the Chinese commercial market in addition to state-owned enterprises,” Scott Metzger, association president and an Ohio farmer, said in the letter.
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–With assistance from Dominic Carey.
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