COMMODITIES : Grain Prices Skyrocket in Response to Drought Report

Grain and soybean futures prices blasted out of their recent slump Wednesday in response to the government’s report of severe drought damage to crops and forecasts for more hot, dry weather in the Farm Belt.

On other markets, silver futures soared, pulling the precious metals higher; livestock and meat futures were mixed; cotton plummeted; energy futures sank, and stock index futures advanced.

Analysts said Tuesday’s special crop report from the Agriculture Department was largely responsible for the leap in prices for future deliveries of grain and soybeans.

Besides slashing its 1988 corn production estimate by 29% to a five-year low of 5.2 billion bushels, the USDA estimated soybean plantings this year at 58.52 million acres, a figure below the market’s expectations, analysts said.

The agency also lowered its soybean and wheat production estimates by 12% and 13%, respectively, and predicted that overall grain production would be nearly 25% below last year’s level.

Many traders had called the damage estimates conservative and some were predicting, even minutes before the markets opened, that soybean prices would rise only moderately on the data.

But within minutes of the opening bell, traders had bid most corn contracts up the maximum of 10 cents a bushel and most soybean contracts were up their 30-cents-a-bushel limit.

The sharp advances halted trading in all but the July contracts, on which limits have been removed pending their July 20 expiration.

Jerry Gidel, an analyst in Chicago with the trading firm G. H. Miller & Co., called the crop-production numbers “impressive” and said most traders apparently came to the same conclusion after digesting the data.

“I guess their enthusiasm picked up after they had a chance to sleep on it,” he said.

In addition to the crop report, forecasts for a return to extremely hot, dry weather in the Midwest kept the buy orders coming. Gidel said unfilled buy orders for December deliveries of corn totaled more than 30 million bushels at the close of the session and unfilled buy orders for November soybeans totaled more than 6 million bushels.

Scattered showers were predicted in the Midwest from Wednesday night through Friday morning, but traders fixated on forecasts for the weekend and beyond, analysts said.

A National Weather Service six- to 10-day forecast issued after the close predicted above-normal temperatures and below-normal rainfall for most growing areas during the middle and latter parts of next week.

The agency’s 30-day outlook called for continued hot and dry conditions in the Midwest and Great Plains through mid-August.

Wheat settled 10.75 cents to 17 cents higher, with July at $3.92 a bushel; corn was 10 cents to 27.5 cents higher, with July at $3.335 a bushel; oats were 10 cents to 25.5 cents higher, with July at $3.045 a bushel, and soybeans were 30 cents to 69 cents higher, with July at $9.485 a bushel.

Reports of a silver miners strike in Peru sent silver futures prices soaring on the Commodity Exchange in New York.

But John O’Connell, metals analyst in New York with Refco Inc., said abundant supplies of silver in the exchange’s approved warehouses should temper any fears of shortages.

Silver settled 19.1 cents to 20.6 cents higher, with July at $7.165 an ounce; gold was $3.10 to $3.90 higher, with August at $441.80 an ounce.

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