Corn Avalanche Coming as Rain Trumps U.S. Planting Slide – Bloomberg

Corn Avalanche Coming as Rain Trumps U.S. Planting Slide

The 8-foot (2.4-meter) corn stalks on Bill Long’s farm in southern Illinois are so big, green and healthy that he wishes he’d sold more of it sooner.

Like many growers across the Midwest, Long expects a second straight record crop that will boost domestic stockpiles already at a four-year high. Output in the U.S. will jump 2.8 percent to 14.314 billion bushels, the most ever, researcher The Linn Group Inc. estimated in a July 1 report. Even after fewer acres were planted, the wettest June on record left fields in the best condition since 2003 and sent prices into a bear market two months before the harvest starts.

“There is a wall of grain coming at us,” said Roy Huckabay, an executive vice president at Linn Group in Chicago, said in a telephone interview July 2.

Two years removed from a devastating drought that damaged crops and sent prices surging, farmers will see yields rise 4.1 percent to an all-time high of 165.3 bushels an acre, government data show. Rising grain output in the U.S., the world’s largest producer, is keeping global food prices in check while boosting profit for meat producers including Tyson Foods Inc. and makers of sweeteners and ethanol including Archer-Daniels-Midland Co. (ADM)

Photographer: Daniel Acker/Bloomberg

Output of corn in the U.S. will jump 2.8 percent to 14.314 billion bushels, the most… Read More

Futures have tumbled 22 percent since the end of April on the Chicago Board of Trade, slipping into a bear market on July 3. Prices today reached $4.03, the lowest since August 2010. The Bloomberg Commodity Index of 22 raw materials dropped 3.9 percent over the same period, while the MSCI World Index of equities advanced 4.3 percent. The Bloomberg Treasury index gained 0.3 percent.

Price Outlook

Corn’s slump may worsen once the harvest starts. In separate reports, Goldman Sachs Group Inc. said June 23 that prices will drop to $4 in six months, while Rabobank International said July 1 the grain will average $4.07 in the fourth quarter. Dan Basse, the president of AgResources Co. in Chicago, predicted a drop as low as $3.50.

As of June 29, 75 percent of the crop was in good or excellent condition, compared with 67 percent a year earlier and the highest at this stage of development since 2003, the U.S. Department of Agriculture said. After low temperatures delayed planting this year, the arrival of warm, wet weather accelerated plant development in June with about 5 percent already reproducing this week, up from 3 percent in 2013.

“Right now, it looks as good as it did last year when we had a record harvest,” Long said by telephone from Franklin, Illinois, where he farms about 3,000 acres with his son. “We have moisture in the ground and mild temperatures for successful pollination. We are ahead of the game.”

‘Phenomenal Potential’

In Iowa, the top U.S. grower, fields show “phenomenal yield potential,” said Todd Claussen, director of agronomy at Ames-based Farmers Cooperative Co., the largest member-owned grain elevator and farm-supply company in the state. Claussen, who travels 55,000 miles a year scouting fields, said farmers planted more seeds per acre than ever and predicted yields in Iowa may near the record of 182 bushels an acre in 2009.

Improved output per acre is more than making up for a 4.4 percent drop in harvested acreage forecast by the USDA. Improved output in the U.S. will help boost global inventories by 8 percent next year to 182.65 million metric tons, the highest in 15 years.

Global output of all grain is forecast to be 2.5 billion metric tons, 18.3 million more than predicted last month, the United Nation’s Food and Agriculture Organization said July 3. Global food prices fell in June for the third straight month.

Weather Risk

With harvest still two months away, output may fall short of forecasts and rising demand may help keep prices from slipping further.

With reduced planting, the impact of heavy rains earlier this year may keep yields around 159 bushels an acre, below the USDA estimate, Bennett Meier, an analyst at Morgan Stanley in New York, said in a report.

Some fields in the Midwest received three times the normal rain in June, which was headed for the wettest on record since 1895, according to T-Storm Weather LLC in Chicago.

“Rains probably have taken the top end off yields, and with a smaller acreage, the crop may be less than a year ago,” said Jerry Gidel, the chief feed grains analyst for Rice Dairy LLC. “Corn prices are cheaper than a year ago, and demand should be better than people expect. We could see the market bottom by the end of July.”

Less Bullish

Money managers have been cutting their corn holdings for the past seven weeks, and are the least bullish since February. As of June 24, net-long positions in futures and options fell to 115,176 contracts, down 58 percent since April 1, U.S. Commodity Futures Trading Commission data show.

With prices already down 17 percent from last year, Long said he will probably end up storing about 25 percent of his crop after the harvest for the first time in four years. He sold about half of his expected output already.

“I wish I had sold more,” said Long, 58. “Farmers are going to stick the corn in the bin and sit on it after harvest.”

Stockpiles in the U.S. on June 1 reached 3.854 billion bushels, up 39 percent from a year earlier and the most for this time of year since 2010, USDA data show. By Sept. 1, 2015, before the harvest, inventories will total 1.726 billion, 51 percent higher than a year earlier.

More Bins

Topflight Grain Cooperative Inc., based in Bement, Illinois is adding 1.5 million bushels of storage capacity and will probably have to tap emergency bins, said Scott Docherty, the general manager. About a third of crops in the area are starting to pollinate, with farmers anticipating yields as high as 250 bushels an acre, compared with an average of about 180 last year, Docherty said.

As much as two-thirds of the U.S. corn crop will push through the critical pollination period by July 20, Bethesda, Maryland-based Commodity Weather Group said in a report to clients on July 1. There are no signs of sustained heat, and moisture will be generally adequate, aiding development for “better-than-average yields,” the forecaster said.

“There will be a mountain of grain at harvest this year,” AgResource’s Basse said by telephone July 2, after scouting corn from Memphis to Minneapolis in the last week of June. “There are some blemishes along river and creek bottoms and some hail and wind damage, but it’s the best crop I’ve seen since at least 1994.”

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29

To contact the editors responsible for this story: Millie Munshi at mmunshi Steve Stroth

Slowing China Demand for Feed Ingredient Jolts U.S. Grain, Soy Markets

Slowing China Demand for Feed Ingredient Jolts U.S. Grain, Soy Markets

Beijing Has Cut Purchases of Dried Distillers’ Grains, a Co-Product of Corn Ethanol, Amid GMO Concerns

June 27, 2014 12:52 p.m. ET

Dried distillers’ grains, a byproduct of ethanol production used as feed for livestock, are loaded onto a grain truck at a North Dakota ethanol plant. Bloomberg News

A tough stance by China on imports of a widely used U.S. feed ingredient is rattling grain and soy markets.

The Asian country in recent weeks has curtailed purchases of U.S. dried distillers’ grains, a co-product of corn ethanol that is fed to cattle and pigs, amid concerns the shipments may contain a genetic modification that Beijing hasn’t approved, said industry executives and traders. The action comes after China also slowed imports of U.S. corn [1]over concerns about the GMO trait.

China stopped issuing new import permits for the ethanol co-product, also known as DDGs, several weeks ago, according to people in the grain industry. Chinese government officials haven’t confirmed a change in policy and didn’t respond to repeated requests for comment.

The move has caused prices of the ingredient to slide about 19% in the U.S. since June 3, based on Agriculture Department data.

The wider availability of the product in the U.S. has pressured prices for competing animal-feed ingredients, including corn and soybean meal. Corn futures have dropped 5% this month. Corn for July delivery rose 0.1% to $4.43 a bushel on Friday at the Chicago Board of Trade.

Futures for soybean meal, made from crushed soybeans and widely fed to hogs and chickens, have dropped about 6% this month, reaching a three-month low on June 20 at the CBOT. Both DDGs and soybean meal are rich in protein, so livestock feeders are expected to substitute DDGs for the meal as prices fall.

“DDGs are cutting into some corn usage and cutting into meal prices,” said

Sterling Smith,

a futures specialist at brokerage Citi Futures in Chicago. “The DDG ban has changed the face of the DDG market.”

The wholesale price for the product in the eastern U.S. Corn Belt was $167.50 a ton on June 24, down from $207.50 on June 3, according to government data.

“People will be feeding the maximum amount of DDGs they can—it’s very price-competitive,” said

Al Kluis,

owner of brokerage Kluis Commodities in Wayzata, Minn.

The price drop could lower profits for U.S. ethanol producers, many of which count on the product for 20% to 25% of revenue.

The U.S. is expected to produce 42.9 million tons of DDGs in the 2013-14 season ending Aug. 31, up 8.7% from a year earlier, according to Iowa State University data. Of that, about one-quarter will be exported.

China has been a major buyer in recent years. It accounted for a third of U.S. exports last year and more than doubled its imports to 1.85 million tons in this year’s first four months from a year earlier.

China’s restriction on DDG imports comes after it all but stopped buying U.S. corn because some shipments contained the MIR 162 genetically modified trait, developed by Swiss seed and chemical maker

Syngenta[2] AG SYNN.VX -0.12%[3]

. Since late last year, China has rejected some corn and DDG shipments because authorities said they contained the banned GMO strain. The rejections, including over one million tons of corn, have hurt profits for U.S. grain traders, including Cargill Inc. and

Archer Daniels Midland[4] Co. ADM -0.25%[5]

Some of the rejected corn shipments were resold to buyers in other parts of Asia, such as Vietnam, South Korea and Japan, according to the USDA. However, it is much harder to divert shipments of DDGs, as China is the biggest buyer of the feed ingredient from the U.S. by a large measure.

Ryan Thorpe,

chief operating officer at Tharaldson Ethanol in Casselton, N.D., said the move is “very concerning,” considering his company exports as much as 40% of its DDGs to China. Mr. Thorpe said he thinks China is using concerns over Syngenta’s biotech trait as a reason so it can pay less for livestock feed[6].

China’s restrictions are affecting purchasing decisions by dairy farmers in its own country.

Li Ruibin,

technical director of Fucheng dairy farm in Hebei province, which has some 8,000 cows, said he can no longer buy imported DDGs. They cost about the same as domestic varieties, but he said he thinks they are of superior quality. He said he already faced higher feed costs because drought in California had boosted the cost of imported alfalfa from the U.S.

U.S. grain and ethanol industry officials said they hoped China soon would ease the restrictions. “I would hope this sorts itself out in weeks, not months,” said

Bob Dinneen,

president of the Renewable Fuels Association, a trade group for U.S. ethanol companies.

—Isabella Steger,

Andrea Gallo

and Chuin-Wei Yap contributed to this article.

Write to Tony C. Dreibus at tony.dreibus@wsj.com[7]

Stuck With 30,000 Boxes of Gourmet Chocolate

When it comes to startups, it’s important to remember your size and to stay true to your original vision.

Those are the lessons Alyssa McDonald learned the hard way during the process of forming her gourmet chocolate company, Blyss GmbH. She still has 30,000 tin boxes of gourmet chocolate to prove her point after shelling out 100,000 euros ($128,700) for designers, agencies and other fancy tools.

"It’s so embarrassing, the amount of money that was wasted because I acted like a big company," she says.

Ms. McDonald has recovered with a completely new strategy for the brand, turning around her Frankfurt-based startup over the past couple of years. She expects to be in the black next year.

Ms. McDonald’s tale is a cautionary one, but it also reflects the broader issues of launching a startup in the largely saturated market of Germany, Europe’s largest economy. While the country’s economic engine has kept humming despite the ongoing euro-zone crisis, startups here face difficult conditions for securing funding, as well as plenty of competition for resources in a market where brand-new Berlin-based tech companies are considered on trend.

Still, the most important lesson came in the form of determining what the vision for the product is – and sticking to it.

Ms. McDonald, originally from Australia and now living in Frankfurt, started Blyss Chocolate because she wanted to bring back the pure flavor of the cocoa bean, without any additives or sugar. She came up with the idea for the business in 2007 after falling ill. Her doctor told her that food ingredients played a part in her illness, prompting her to reexamine what people eat.

Two years later she quit her job as head of an international media-relations team for a large German company to pursue her vision.

"We’re eating so much glutamate, artificial flavors and preservatives," she says. "There are so many fillers to make cheap stuff last longer. It’s not food."

She discovered that unprocessed cocoa beans feature a number of health benefits, including magnesium and antioxidants – and they’re even diabetic-friendly.

The Australian traveled to the jungles of Ecuador, searching for the perfect cocoa bean: Arriba Nacionale, which features an intense smell and flowery aroma. She invested in an agricultural cooperative, where approximately 450 families grow cocoa pods for the chocolate company. She also plans to have the farmers partake in a profit-sharing plan.

Ms. McDonald sank all her savings into the development of a chocolate bar and a stylish designer metal box. While she applied to competitions for startups, organizers rejected her in favor of technology firms. She says she chose not to pursue loans for an unproven idea.

Her chocolate bar launched in 2010, but buyers failed to line up. Today she still has 30,000 boxes lying around.

Through this painful learning experience, she realized that the difference between expensive and cheap chocolate was not clear to consumers, and she’d have to figure out a better way to differentiate herself in the market.

She decided that the big marketing budget would go, and that she’d reduce the brand back to her original idea: single bean virgin chocolate.

She switched to producing cocoa, cocoa butter and chocolate in Ecuador, cold-pressed and partially hand-milled to retain the flavor and aroma. In addition, she created a "snack nut" version to show-off the flavor: chocolate-covered pieces of cocoa beans packed in unadorned glass jars.

In another key aspect of her new strategy, Ms. McDonald has limited her target group of customers to head chefs, sommeliers and luxury hotel managers in Europe, the Mideast and Asia.

"Chefs and sommeliers are our people, because they are the ones with trained noses, and they’re the ones that know their stuff," she says.

Her customers have come up with new ideas, inspired by her product, and such collaborations have resulted in additional products, including Rooibos tea with Blyss cocoa beans and bath essences with Blyss cocoa extract. The products are developed in cooperation with manufacturers in Germany or India and produced in limited quantities.

The connection with hotel managers has also opened up the chance for some grassroots marketing and networking. Ms. McDonald says she’s been invited to give lectures and workshops on health-conscious eating, chocolate and alternative business models.

Together with six freelance employees, scattered across the globe from Byron Bay, Australia to Frankfurt, Ms. McDonald watches the weather and harvest conditions and communicates with the teams in Ecuador. They take care of everything through Skype, Dropbox, Google, Toodledo and email.

Ms. McDonald now likes to hold up two jars of cocoa beans under potential customers’ noses and ask them which one looks nicer and smells better. She says it’s the most powerful way to win them over.

"There’s no branding, no labels and it’s not about brand games and market presence," she says. "It’s easy like that."

B. regardsFelix(Kyung) Seo

Australia Farmers Look to Bypass Trading Companies

A small but growing number of Australian farmers, under pressure from a strong currency and rising costs, are pushing aside commodity traders in a bid to boost earnings.

Whether on their own or in cooperatives, these farmers are selling direct to Asian buyers—bypassing traders like Louis Dreyfus Commodities and Cargill Inc., which dominate the global trade in agricultural commodities.

Australia is among the world’s top suppliers of wheat, beef, cotton and sugar, and is seen as crucial in filling the gap as global food demand grows an expected 80% by 2050, including major growth in Asia.

But rising costs and mounting debt, accumulated through years of drought, as well as the lure of more-lucrative mining jobs are pushing farmers out of the business. Australia’s rural population is expected to fall by half in the next decade.

Farmers argue that direct selling allows them to earn more by eliminating merchants’ fees.

“To make a reasonable living as a farmer under current prices was becoming untenable,” said Queensland cotton farmer Glen Rogan, who plans for the first time to sell all his 6,500 bales of high-quality fiber direct to Asian mills, and hopes to earn a 30% premium by doing so. “That was the only way I could see to stay relevant and viable.”

Direct deals also appeal to some buyers, who like the farmers see it as a way to cut costs and improve their negotiating position. Many companies in fragmented industries like textile manufacturing or flour milling think the “ABCD” trading houses—Archer Daniels Midland Co., Bunge Ltd., Cargill and Dreyfus—along with Singapore-based traders like Noble, Olam and Wilmar, hold too much sway in the supply chain.

On a recent Australia trip to look for suppliers, Chen Jun, general manager of Chinese cotton importer and spinner Zhangjiagang Free Trade Zone Worldway Import and Export Co., said one issue with buying from the big merchants is the international standard contract. It specifies fibers of between 3.5 microns and 4.9 microns, which means Worldway gets a lot of cotton that is too heavy for its spindles.

“We want to find a way to buy from the growers or gins,” Mr. Chen said. “Saving even one cent a pound is worth it for us.” Worldway, based north of Shanghai, buys 120,000 metric tons of cotton a year that it spins or sells, and about 60% of it comes from large merchants.

Traders say they benefit both farmers and consumers.

Josh Martin, Head of Trading & Risk Management at Cargill, said large companies allow farmers to stagger sales, which can get them better prices. The large companies also take on weather risk, a major factor in drought-prone Australia, provide long-term infrastructure investment, and bear the costs if contracts don’t get paid.

Merchants have been pushing hard into Australia’s grain sector since the breakup of the government’s central exporting agency in 2008. ADM is closing on a 3.4 billion Australian dollar (US$3.3 billion) deal for Australian trading company GrainCorp Ltd. That would give ADM, Glencore and Cargill a combined slice of nearly 60% of wheat shipments from Australia, the world’s second-largest supplier, and put almost all the country’s export infrastructure under foreign ownership.

Merchants are loath to disclose sensitive profit margins. Some traders suggest these amounted to $50 to $100 a ton when cotton prices were at their 2011 high, and Mr. Watson reckons farmers need a premium of $20 to $30 a ton, net, to make marketing direct worthwhile.

There are costs to going it alone. Farmers can’t sell their crops ahead of the harvest, making it harder to pay for fertilizers and pesticides when needed. They take on price, exchange-rate and weather risks, and face the possibility of jumps in storage and transport costs.

Their risks are particularly great when prices are volatile. The sudden fall in world cotton prices last year prompted mills to cancel purchases, sending contract defaults soaring. Disputes in Australia alone rose to a record A$400 million—costs shouldered by the merchants, estimated to control more-than 80% of exports.

“I can see the benefits of going direct, but you need to have deep pockets if it goes wrong,” said Adam Kay, chief executive of industry group Cotton Australia.

Exports Lift Wheat Prices

Wheat prices jumped 2.1%, lifted by higher-than-expected U.S. export sales and concerns that dry weather is hurting a portion of the nation’s crop.

U.S. grain exporters booked orders for 952,600 metric tons of wheat during the week that ended May 16, the U.S. Department of Agriculture said in a report Thursday. That exceeded analysts’ expectations of 400,000 to 700,000 metric tons.

Wheat futures also were helped by concerns about the health of wheat crops in the southern U.S. plains. Persistent dryness and freeze damage this spring in parts of Kansas and Oklahoma have reduced expected yields, according to the USDA. Much of the Great Plains continues to face severe drought, while dryness has eased in much of the nation’s Farm Belt since last year’s record U.S. drought.

Wheat futures for July delivery rose 14.75 cents to settle at $7.0325 a bushel at the Chicago Board of Trade, a one-week high.

The USDA’s export report was welcome news for traders, because it showed that recent declines in U.S. wheat prices have stimulated demand for the crop from foreign buyers, said John Kleist, senior analyst with brokerage Ebottrading.com in Lakemoor, Ill.

Tepid export demand and lower corn prices have weighed on U.S. wheat futures this year. Wheat and corn often trade in tandem, because both are used in animal feed.

U.S. soybean futures hit an eight-month high, supported by a strong weekly export sales report and concerns domestic supplies will tighten further amid robust demand. Soybeans for July delivery rose 5.25 cents, or 0.4%, to $14.995 a bushel.

The USDA reported net weekly soybean export sales of one million metric tons, higher than analysts’ expectations of between 400,000 and 800,000 metric tons.

Soybean stockpiles are tight after the drought last year reduced U.S. soybean output. Soybean processors are expected to import supplies from South America this summer to meet demand from customers because domestic stockpiles will be unusually tight until this fall’s U.S. harvest, analysts said.

“U.S. soybean domestic and export demand is still running at unsustainable levels,” said Dave Marshall, grain marketing adviser for agricultural-advisory firm TCFG LLC in Nashville, Ill.

Corn futures rose, climbing alongside wheat amid signs of solid domestic demand for the grain. Corn for July delivery gained 3.5 cents, or 0.5%, to $6.62 a bushel.

Write to Andrew Johnson Jr. at andrew.johnson