Analyst says crops improve, but prices could rise

A Wachovia analyst said late Monday that the U.S. Department of Agriculture's most recent crop report shows that while crop conditions continue to improve, they nevertheless have been effected by rough weather, possibly driving prices higher.

Andrew Casey wrote in a note to investors that the USDA's report for the week ended Sunday indicates crops are below last year's levels. Corn and soybean crops are below five-year averages.

According to the report, 62 percent of the corn crop was in good or excellent condition, compared with 61 percent the week before and 70 percent in the same week last year.

Meanwhile, about 59 percent of the soybean crop was in good or excellent condition, compared with 65 percent in the same week of 2007.

"While it is still early in the season, the late plantings combined with below-average crop conditions ultimately could put downward pressure on crop yields, driving potential upside to current commodity prices," Casey said. "We view this crop progress report as neutral for farmers."

The analyst backed his "Outperform" ratings for farm equipment companies Deere & Co. and Agco Corp.

Casey said he expects implied cash flow from corn, wheat and soybeans to remain around their current levels. But if they fall significantly, demand for farm equipment would probably drop as well and result in lower-than-expected profits at Deere.

In midday trading, Deere fell $3.29, or 4.7 percent, to $66.53, while Agco fell $3.84, or 7.6 percent, to $46.72.