October 3, 2011

 

US abundant corn causes futures to plummet

 

 

After the US discovered an additional 200 million bushels of corn, US corn futures dipped 6% to a 10-month low, reducing fears that buyers would need to purchase more to ensure supplies.

 

Corn for December tumbled the exchange maximum of US$0.40 a bushel to US$5.92 a bushel in Chicago, a 2011 low for a spot contract, after the USDA pegged domestic corn stocks as the start of this month at 1.13 billion bushels.

 

While traders had expected some increase from the last estimate of 920 million bushels that the USDA factored in, the upgrade was well beyond even brokers' most aggressive forecasts.

 

It also indicated that the high corn prices over the summer, which in June took corn to a record high of US$7.99 a bushel, had been more effective than rationing demand than analysts had thought, meaning buyers now faced less aggressive competition for supplies.

 

Indeed, broker US Commodities said that, with the data showing more than 200 million bushels (5.2 million tonnes) of extra corn than had been thought, the report now cushions the need to ration 400 million bushels over 2011-12, as official data earlier in the month had indicated.

 

The data stunned the market, with a trader terming them ragingly bearish, adding that the USDA simply shut bulls down.

 

Even so, the extent of the plunge in corn futures took him off guard.

 

"How can anyone justify a price level sub-US$6.00 a bushel with problems still persisting in Argentina and Brazil?" The trader also asked, a reference to the dry weather weakening prospects for the third and fourth ranked producer of the grain.

 

But US Commodities proposed that prices of US$5.50-6.00 a bushel in December corn may be needed to tempt corn consumers back to the market, especially with Ukraine corn being sold more cheaply by, until Friday (Sep 30), US$0.75 a bushel.

 

The collapse in corn prices undermined other corps too, notably Chicago wheat, which also plunged 6% in early deals, to a two-month low of US$6.05 a bushel at one point, even though USDA data was considered more neutral for the grain.

 

While the USDA officials estimated US wheat stocks, as of the start of the month, slightly higher than the market had expected, they cut their 2011 wheat harvest estimate, in a separate report.

 

The downgrade reflected weaker hopes for spring wheat, reflecting disappointing sowings and lower yields of what was planted.

 

"The excessively wet conditions lingered into early summer and eventually reduced the total acres available for planting in North Dakota and Montana," the USDA said.

 

"Yields are below the previous year's level in all states except Idaho, Oregon, and Washington," the department added, cutting by 4.2 bushels an acre to 38.3 bushels an acre its forecast for spring wheat.

 

Hard red spring wheat, the type traded in Minneapolis, suffered particularly, with a cut in output to 405 million bushels.

 

This revision at least slowed the decline in Minneapolis spring wheat futures, with the December lot falling a modest 0.4%.

 

Losses of 3% were seen in European wheat contracts.

 

Back in Chicago, soy lost 4.2%, despite being given some shield by US stocks data which, in showing inventories 10 million bushels smaller than the market had expected, were viewed, in isolation, as modestly helpful to prices.