January 14, 2010

Grain prices in US sink with more supply

Grain prices tumbled on Tuesday (Jan 5) after the USDA has declared that 2009 crops came in above previous estimates.

Corn, soy and wheat prices all plummeted on the Chicago Board of Trade following a government report that showed corn and soy production surpassed forecasts made in November and hit record levels last year.

Even though the department may update its harvest estimates again in March, analysts said the market has heard enough from the January report to conclude that this year's grain crops were abundant to send futures prices sharply lower.

"This is enough of a final word to send shock waves through the Chicago Board of Trade," said Richard Feltes, senior vice president and director of commodity research at MF Global.

Feltes added that the surging crop supplies may indicate that grain prices have already seen the highest level ever reach in 2010 – less than two weeks into the year.

Despite bad news for farmers looking to sell grains, food companies and consumers are likely to benefit from the lower prices.

Corn for March delivery tumbled 30 cents, or 7.1 percent, to settle at US$3.925 a bushel. Soy dropped 32.5 cents, or 3.2 percent, to US$9.78 a bushel, while wheat fell 36.75 cents, or 6.4 percent, to US$5.3575 a bushel.

Both corn and soy for March delivery hit their 2010 highs on the first day of trading in the year, Jan. 4. Corn traded as high as US$4.2625 a bushel, while soy hit US$10.7475 a bushel. Wheat prices climbed as high as $5.75 a bushel in trading Monday.

The USDA left its forecast for Florida orange production unchanged from its previous report in December. However, the department warned its estimates of not taking into account any damage sustained in recent days from cold weather.

Demand for frozen concentrate will grow if supply of fresh fruit is scarce. On Monday, the trade group Florida Citrus Mutual warned it might still be weeks before the full extent of damage from the freeze is known.