Corn prices shot up as a pair of closely watched analysts slashed their outlook for the upcoming harvest, adding to the growing supply worries.
Corn for September delivery jumped almost 3% to close Friday at $7.5025 a bushel. Corn's rally spurred similar moves in wheat and soybean futures on the Chicago Board of Trade on a day when most commodities, such as oil, fell on disappointing employment data out of the U.S.
Brokerage INTL FCStone Inc., which advises farmers on how to manage price risk, cut its view of U.S. corn output by 5% to 12.35 billion bushels and its yield estimate by 4.5% to 146.3 bushels an acre.
Crop forecaster Lanworth took a dimmer view, chopping its yield forecast to almost 143 bushels an acre, traders said. The firm, which uses satellite imagery in forecasts it usually keeps under wraps, declined to comment.
The revisions were deeper than what many market participants had expected.
"It was pretty aggressive," said Jerry Gidel, analyst for North America Risk Management Services, a brokerage in Chicago.
Corn prices are up 19% so far this year. The fall harvest in the U.S, the world's top corn producer, will be large by historical standards but still fall short of global demand. That means the world's inventory will dwindle in the coming year as livestock producers gobble up the grain to feed their animals and ethanol manufacturers use it to make biofuels. Demand from China, which bought large quantities of U.S. corn earlier this year, could put more pressure on supplies.
A yield as low as FCStone's implies grain users need to reduce their demand to avoid a shortage of corn, said Tomm Pfitzenmaier, analyst for Summit Commodity Brokerage in Iowa.
Both firms' outlooks are significantly below the Department of Agriculture's latest projections, issued on Aug. 11. The USDA then estimated the corn harvest at 12.914 billion bushels, with an average yield of 153 bushels an acre. The agency is scheduled to update its figures in a Sept. 12 crop report.
In light of fresh information on the development of this year's crops, the USDA is expected to cut its estimates.
Research firm Informa Economics, whose crop forecasts are also closely followed, is expected to circulate its latest outlook on Tuesday.
"Extremely disappointing corn production prospects should be enough to push the market to new highs eventually," said Doug Bergman, a broker for MF Global in Chicago.