* USDA supply-demand report in focus
* Analysts expect cuts in yields and crop size
* Big drop possible in harvested acres for corn
* CBOT futures to get price direction from USDA report
By K.T. Arasu
CHICAGO, Aug 5 Grain markets seeking a leg up
amid a pause in a rally that set record highs last month could
get the stimulus from a U.S. government report on Friday
quantifying crop damage from the worst drought in 56 years.
The monthly crop production report from the U.S. Department
of Agriculture will also show how much demand for corn and
soybeans from end-users including livestock feeders and
importers would be lost due to the surge in prices.
However, just as the USDA report may give grains futures at
the Chicago Board of Trade fresh bullish impetus, the government
data based on a survey of farmers could easily trigger a selloff
if it underwhelms traders.
"The bulls don't have anything more to play with," said
grains analyst Dale Durchholz of AgriVisor in Bloomington,
Illinois, alluding to how prices have soared on bets the crop is
shrinking. "Everyone feels the market is at a tipping point."
CBOT corn futures have soared 44 percent since mid-June as
the drought expanded across two-thirds of the contiguous United
States, while soybeans have rallied 18 percent.
The gains helped CBOT wheat futures to rise 34 percent over
the same period, with additional support coming from crop
trouble in Europe, especially in leading exporter Russia.
Having posted such sharp gains over a relatively short time,
grains futures had neared a peak and were heading for a second
straight weekly decline, some analysts thought, until prices
surged on Friday after unexpectedly strong jobs data.
Private crop analysts have been slashing their production
estimates to well below current government forecasts and the
market now needs USDA confirmation before deciding on its next
INFORMA CUTS YIELD ESTIMATE
Closely watched analytics firm Informa Economics on Friday
pegged U.S. corn yield at 120.7 bushels per acre and production
at 10.338 billion bushels, down from its July 27 forecasts of
134.0 bushels and 11.5 billion bushels, respectively.
The USDA's current forecast is a yield of 146 bushels and
production at 12.97 billion.
Informa pegged the soybean yield at 37.2 bushels per acre
and production at 2.791 billion, down from 38.5 bushels and 2.9
billion bushels, respectively. The USDA's estimates are 40.5
bushels and 3.050 billion bushels, respectively.
In its July report, the USDA cut the corn yield by an
unprecedented 20 bushels from 164 bushels per acre, and some
analysts said the department might not make as big a cut this
But it could still sharply reduce its production estimate by
slashing its projection of the number of acres that farmers will
harvest. In last month's report, the USDA estimated the
harvested acres for corn at 88.9 million.
Analysts expect a big drop in the harvested acres for corn
because of drought damage, and a need by farmers to harvest more
acres than usual for silage due to poor yields.
Agronomist Michael Cordonnier of Soybean and Corn Advisor in
Hinsdale, Illinois said he expected 83 million acres of corn to
be harvested this year -- nearly 6 million acres less than the
USDA's July estimate.
He said farmers were not harvesting areas too severely
damaged by the drought to claim insurance, and cited increased
cutting of the crop to be used as silage for feeding livestock.
SILAGE AND ABANDONMENT
"A dairy farmer's priority would be to chop the plants for
silage so that he has enough to feed his livestock and not
harvest the crop for grain," he said.
Analysts are expecting a significant reduction in the number
of corn acres that will be harvested because the crop took the
brunt of the drought. The light rains that fell in parts of the
Midwest in the past two weeks came after much of the crop had
pollinated, when yields are determined.
Also in focus would be the demand side of the equation, with
high prices already denting export demand.
Latest weekly sales of U.S. soybeans to foreign buyers were
the smallest total in nine months, according to the USDA, while
corn sales were 70 percent smaller than a year earlier.
"We know the yield and supply side are getting tighter, next
week we'll know the demand," said Steve Georgy, grains analyst
with Allendale Inc in McHenry County, Illinois.
He said that if the USDA's estimate of demand is deemed too
high compared with trade expectations, prices will go higher to
dent buying interest in order to preserve sufficient emergency
supplies in the United States.
"We know we have lost demand, the question is how much," he
Cattle ranchers and hog farmers have been culling their
herds because of high feed costs, scorched pasture and increased
hay prices brought on by the drought.
This could result in a near-term boost to meat supplies and
possible lower prices, but consumers might have to fork out more
for meat next year when cattle and hog supplies tighten.
Brandon Kliethermes, a senior economist with IHS Global
Insight agricultural service, said the USDA's estimate of
harvested acres for corn could be the key to giving the grains
markets fresh price direction.
"The ultimate question is not really what the yield is but
how much they lower harvested acres," he said.