The US Department of Agriculture today lowered its estimate of the US corn crop by 20 bushels/acre, from 166 to 146. The cut comes as hot, dry weather continues to plague the nation’s corn-growing Midwest.
The USDA estimate of annual US production fell from the June estimate of 14.79 billion bushels to 12.97 billion bushels. Analysts were expecting a cut to 13.53 billion bushels. Corn stockpile estimates in advance of the 2013 harvest were also cut by 37%, to less than 1.2 billion bushels.
Corn futures touched $7.49/bushel this morning, following the USDA report, while wheat futures came close to $8.50/bushel, the highest wheat price in the past 12 months. The wheat crop will be lower, but beginning stockpiles will be higher. Winter wheat production was reduced by 14 million bushels.
The US corn supply affects everything from the price of breakfast cereal to gasoline pump prices. Input costs for cereal makers like General Mills Inc. (NYSE: GIS) and Kellogg Co. (NYSE: K) will rise and those price hikes will be passed along to consumers. The price of ethanol will rise, forcing producers like Valero Energy Corp. (NYSE: VLO) and Archer Daniels Midland Co. (NYSE: ADM) to raise prices or absorb losses. A steady decline in miles driven helps offset the price increase in corn, but that will only moderate the price hikes, not stop them.