Summary
The USDA is now forecasting the largest soybean crop in history and the second largest corn crop. If the crops come to fruition there will be winners and losers in the agribusiness and food sector.
Analysis
The USDA last week revised their estimate of planted acres of corn and soybeans as well as estimated production for the 2009-2010 crop year. This will be the largest US soybean crop with an estimated production of 3.26 billion bushels. The estimate for corn would be the second largest in history at a bin busting 12.29 billion bushels. The record soybean crop comes just in time to replenish very tight global inventories of soybeans and vegetable proteins.
It is a long time until major harvest begins in September and October, and the crops still need to go through the most critical stages of pollination and setting, not to mention the threat of an early frost on this very slow developing crop. If the crops do hit or surpass the latest USDA estimates there will be winners and loser.
Winners include all the companies that depend on corn and soybeans as ingredients, including the likes of Tyson Foods, Smithfield, Cal-Maine, JBS, Sanderson Farms, ADM, ConAgra, Bunge, Cargill, Dreyfus, The Andersons, Corn Products International, Tate & Lyle, Kraft Foods, ethanol producers, silo manufacturers and many others.
And the losers, starting with the farmers who have not hedged a sufficient share of their crop with forward sales, futures or options, include the sellers of farm inputs. Many farmers will be hurt if corn futures remain below $3.40/bushel and if soybeans approach $9.00/bushel. Farmers in Brazil will be squeezed even with the recent drop in fertilizers. There will probably not be any expansion in corn and soybean production down there, and farm inputs will be kept at bare minimums. This will hurt some of the same large commodity trading/processing companies that will get a pickup in the US. This includes Cargill, ADM, Bunge and Dreyfus.
While there are clearly many more winners in the world from adequate supplies and lower prices, companies supplying farmers in North and South America with farm inputs will possibly suffer the most, even after recent price drops. These include Pioneer Seed, Monsanto, BASF, Bayer, Syngenta, POS, Mosaic, Terra and CF Industries.
It is a long time until the US crops are harvested, and there are many things that can go wrong between now and then. There is one other weather factor that also will need to be monitored over the next 3-9 months due to their potential impact on crops and fishing in SE Asia, Australia and South America, and that is El Nino. We are now in an El Nino year and if it were to develop into a severe El Nino, we could see major crop production disruptions in many important production countries.
