USDA Estimate Cut in Corn Yield Sends Agriculture Stocks Flying

What a tremendous move today in the agriculture space… amazing what a 4% estimated cut in corn production will do for you. Considering this is within the margin for error… and considering this will still be the 3rd largest corn production year on record… and largest soybean year the moves are remarkable. (I find myself saying that a lot lately). Right now any outlier news that can be used as an excuse to drive up any soft or hard commodity is creating parabolic moves.

The USDA says its corn estimate has a margin of error of 5.4 percent and soybeans 4 percent.

iPath DJ-UBS Grains TR Sub-Idx ETN (JJG)

Via Reuters:

The U.S. corn crop is likely to be far smaller than expected as late summer heat reduced yields across the Corn Belt, and the corn stockpile will shrink to less than a four-week supply by next fall, a government report said on Friday.

In a shock to markets, the U.S. Agriculture Department cut its estimate of the corn crop by 4 percent and soybeans by 2 percent based on conditions Oct. 1. Its forecast of crop size and a bare-bones level of season-ending stocks were well below analysts’ expectations and sent grain prices soaring in Chicago.

At the Chicago Board of Trade, corn, soybean and wheat futures each rose by the maximum permitted daily amount. Corn for December delivery zoomed 30 cents to $5.28-1/4 a bushel, December soybeans rocketed 70 cents to $11.35 a bushel, and wheat shot up 60 cents to $7.19-1/4.

Fertilizer shares also rose, with analyst Edlain Rodriguez of Broadpoint Glecher saying farmers will need nutrients to expand corn production.

Despite the slump, the corn crop would be the third-largest on record. The soybean crop would still would be the biggest on record.

You have multiple fertilizer stocks: Intrepid Potash (IPI), The Mosaic Company (MOS), CF Industries Holdings (CF) up 10%ish… you have equipment makers: AGCO Corporation (AGCO), CNH Global N.V. (CNH) up 10%ish…everything must go. (up)

Disclosure: No positions

About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

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