* Cargill wants less corn used for ethanol
* Drought hits ADM Inc's earnings
* China worried about U.S. soybean supplies
By Bob Burgdorfer
CHICAGO, July 31 Alarm grew over the unrelenting
Midwest drought on Tuesday, as one of the top corporate leaders
in agriculture warned that the government must act quickly to
reduce the amount of corn going to ethanol to prevent a sharp
spike in food prices.
Worries about the worst drought in more than half a century
afflicting the world's largest grain exporter also deepened
overseas, where buyers in China and other hungry nations fret
that the expected sharp drop in U.S. harvests will cause
shortages and price spikes.
Greg Page, chief executive of global grains trading giant
Cargill Inc, joined a chorus of critics of biofuels by urging
the U.S. government to temporarily curb its quotas to produce
corn-based ethanol fuel.
Page said on CNBC that the U.S. biofuel mandate "needs to be
addressed" through existing policy tools. Otherwise, the spike
in U.S. corn and soybean prices to record highs will "ration"
demand in ways that will hurt food production too much.
"If all of that is only on livestock or food consumers, it
really makes the burden disproportionate. What we see are 3 or 4
percent declines in supply lead to 40 to 50 percent increases in
prices, and I think the mandates are what drives that," he said.
In 2011, almost 40 percent of the giant U.S. corn crop went
into making ethanol, and the United States still exported more
than half of all corn shipments worldwide.
"There is a methodology to reduce the amount of biofuels
that is mandated in the U.S," Page said.
The U.S. Agriculture Department last week raised its
estimates of food price inflation due to soaring grain prices
tied to the drought, saying prices could rise as much as 3.5
percent this year and another 3-4 percent in 2013, led by meat.
On Monday, U.S. livestock groups appealed to the
Environmental Protection Agency (EPA) to curb or suspend the
mandate, warning against the ruinous impact of soaring feed
costs. Corn and soybean meal make up basic animal feedstuffs.
Page said the shortfall in supply would be "manageable"
provided that consumers ration their use, that producers don't
impose export constraints and importers don't embark on a
panicked buying spree, as some did in 2008 -- a
beggar-thy-neighbor approach widely seen to have worsened the
"We need thoughtful responses from governments. We need to be
sure free trade remains. In past periods of shortage of crops,
we've had embargoes, which have exacerbated peoples' supply
concerns and caused people to take actions that were not helpful
to global aggregate food security," he said.
CROP OUTLOOK WORSENS
Grain analysts polled by Reuters pointed to a U.S. corn crop
of 11.2 billion bushels, the smallest in six years and down 14
percent from USDA's latest forecast of 12.97 billion. Initial
forecasts were for a crop of more than 14 billion bushels.
Soybeans, which were planted later and until now escaped the
drought's pressure, are now also being hurt. Analysts predict a
2.834 billion bushel harvest, the smallest in four years, and
down from USDA's latest estimate of 3.05 billion bushels.
The drought is hitting other food producers besides Cargill.
Oilseed processor and ethanol producer Archer Daniels
Midland Inc reported a larger than expected 25 percent
drop in quarterly profit on Tuesday due in part to higher corn
prices causing it to lose money making ethanol.
"In a challenging fourth quarter, solid results from our
global oilseeds business, particularly in South America, were
more than offset by negative U.S. ethanol margins and weaker
U.S. merchandising results." ADM CEO Patricia Woertz said.
Brokerage BB&T Capital Markets last week lowered its
earnings forecasts for U.S. pork producer Smithfield Foods Inc
and U.S. chicken producer Sanderson Farms Inc,
citing corn prices.
But some said that easing off ethanol production -- already
at a two-year low amid soaring corn prices -- was unnecessary.
In Iowa, the largest U.S. corn and soybean producer, Gov.
Terry Branstad said on Tuesday he opposed an ethanol waiver.
"Even if you took that kind of action, it probably would
have no action on soybean and corn prices," Branstad said.
Ray Bardole of Rippey, Iowa, a soybean farmer and industry
official now touring China, told reporters by phone that he has
been reassuring the worried Chinese, who are the biggest
importers of U.S. soybeans.
"As we have met with folks from the government, as well as
the Chinese media and our customers themselves, that is
absolutely the very top thing on their mind," he said. "'What is
the dry weather going to do to our supply?'"
At the Chicago Board of Trade corn and soybean markets eased
back from new record highs this week as traders took their
profits. Even with Tuesday's drop, corn prices are up 20 percent
in July to post the biggest two-month rally since the last major
drought in 1988.
December corn futures closed down 1.1 percent at $8.05-1/4
per bushel and November soybeans closed down 0.2 percent at
$16.41 per bushel.
"We are continuing to see a deterioration of the crops,"
grains analyst Karl Setzer of MaxYield Cooperative in West Bend,
Iowa said, referring to the U.S. Department of Agriculture's
crop progress report issued on Monday.
That report said 24 percent of the domestic corn crop was in
good-to-excellent condition as of Sunday, down from 26 percent
the previous week. That was a tad better than trade expectations
for a three-point drop.
The soybean crop was 29 percent in that category, down from
31 percent in the previous week.
Those ratings were the worst for those crops since the last
major drought in 1988.