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Reuters, Published September 12 2013

USDA raises U.S. corn crop forecast despite late-season drought

WASHINGTON - The latest U.S. corn crop forecast is even bigger than expected despite a late-summer drought in the central and western Corn Belt that slashed the soybean crop by 3 percent from a month ago, the government said on Thursday.

With harvest at hand, the Agriculture Department estimated the corn crop at 13.843 billion bushels, topping the record set in 2009, and the soybean crop at 3.149 billion bushels, the fourth-largest ever.

In the Chicago futures markets, the new-corp December corn contract tumbled more than 3 percent after the report, while the new-crop November soybean contract rose slightly in choppy trading. Wheat prices were lower, hit by increases in world production and stocks.

"USDA made the first step in recognizing the soybean problems. We expect a further (downward) revision in next month's report," said Rich Nelson, chief strategist with Allendale Inc.

USDA's corn estimate was nearly 2 percent larger than traders expected while its soybean figure closely matched expectations. The crop forecasts were based on conditions on Sept. 1.

Hot, dry weather has persisted in the western and central Corn Belt recently, prompting concerns of smaller crops at harvest than currently forecast. Traders quickly turned their attention to a possible cut in October forecasts.

"You have to take it with a grain of salt," Alan Brugler, president of Brugler Marketing and Managagement, said of the shock increase to the corn crop. "It is probably accurate for what we know today, but when we get more objective yield data it might go down."

U.S. corn and soybean harvests will be under way later this month in the key Midwest production areas.

The U.S. corn stockpile at the end of the 2013/14 marketing year was forecast by USDA for 1.855 billion bushels, nearly triple the 661 million bushels in U.S. bins when the marketing year opened on Sept 1.

"The end stocks now at 1.855 billion bushels (is) certainly not supportive to prices as we go into harvest," said Shawn McCambridge, analyst for Jefferies Bache.

Traders had expected a corn carry-over of 718 million bushels from 2012/13 and 1.732 billion bushels at the end of 2013/14.

"Higher yields for the Central Plains and across the South more than offset yield reductions for Iowa and North Dakota," said USDA about the corn crop. It cut its soybean crop estimate "due to lower yield prospects, especially in the western Corn Belt."

Although hopes for a record soybean crop wilted with the dry weather, soybean supplies should rebound from three years of ever-smaller production. Mammoth crops this year would temper commodity prices that hit record highs with the 2012 crop and relieve stress on livestock feeders and foodmakers.

The soybean stockpile at the end of the 2013/14 marketing year was forecast by USDA at 150 million bushels, smaller than the 165 million bushels expected by traders and a huge reduction from 220 million in August.

The average farm-gate price for soybeans in 2013/14 was raised to $12.50 per bushel from $11.35 last month.

"Clearly the corn number was negative and the soybean number was positive. It will probably bring back with a vengeance the soybean-corn ratio trade," said Mike Zuzulo of Global Commodity Analytics.

Iowa, usually the No. 1 producer of corn and soybeans, was hit hard by the late-season drought. Nearly one-third of its soybeans were in poor or very poor condition at the start of this week.

In making its crop forecasts based on condition on Sept. 1, USDA relied on interviews of 11,500 farmers and spot checks of thousands of fields. The soybean estimate has a margin of error of 9.6 percent and corn has a 8.5 percent.

Among world crops, wheat production was forecast at a record 708.9 million tonnes this year, up 3.5 million tonnes from August, pushing up ending stocks as well. Projected U.S. wheat ending stocks were up 10 million bushels on the month.

"It's a corn world, and wheat is just living in it," quipped Charlie Sernatinger of ED&F Man Capital.

Brazil meanwhile will reap a record 88 million tonnes of soybeans in 2013/14, up 3 million tonnes from the August estimate due to an increase in planted acreage, USDA said.

It will edge the United States as No. 1 in the world by 2.3 million tonnes and have a longer export season.

"U.S. exports will face stiffer competition over the coming months. Increased exportable supplies in South America this fall combined with the current forecast of another record harvest in 2014 will likely narrow the export window for U.S. soybeans," USDA said in a companion report on Thursday.