January 14, 2011

 

Grain prices rise as US supply outlook shrinks

 

 

Grain prices increased after the USDA made another deep cut in its outlook for worldwide supplies.

 

The USDA again revised downward its estimate for the size of last year's corn and soy harvest in the US.

 

End-of-season inventories of corn, already expected to be at a 15-year low, were cut by more than 10%. Harvest estimates were trimmed for key export countries abroad.

 

The closely watched monthly crop reports provided yet more confirmation that world supplies are approaching precariously low levels.

 

The devastating drought and wildfires in Russia last summer was a shock to grain markets followed by a disappointing US harvest.

 

Just recently, crops are hurting from a drought in Argentina, dryness in the US Plains and torrential rains in Australia.

 

A tug-of-war is anticipated among crops as farmers in the US decide what to plant this spring. High prices for wheat, soy and cotton will entice farmers to plant more of those crops, and that could mean corn supplies won't grow back to comfortable levels until 2013 or 2014, an analyst said.

 

In its first estimate of how much winter wheat was sown this fall, the USDA said 41 million acres were planted.

 

This was in line with expectations, but still remains below 2008 levels in part because some farmers likely are forgoing wheat to focus on soy.

 

At the Chicago Board Of Trade, corn and soy futures surged the most they're allowed to per exchange limits, before pulling back to settle at more than two-year highs.

 

Corn for March delivery, the most-active contract, closed up 4% to US$6.31 a bushel, while soy futures for January delivery, settled up 4.3% to US$14.09 a bushel. Wheat prices jumped 1.5% to US$7.70 half a bushel.