October 11, 2010

 

US crop prices soar amid corn yield cut

 

 

Crop futures soared after the US made surprise cuts to estimates for its corn and soy yields, and tightened its forecast for wheat supplies by more than investors had expected.

 

Prices of all three of Chicago's major crops jumped in opening deals to the maximum that exchange limits allowed, and closed there.

 

For corn, this meant a rise of 6.0%, for soy an increase of 6.6% and for wheat a 9.1% climb, although the grain eased marginally in later trading.

 

European wheat lots rallied too, with Paris's November lot adding nearly 8% at one point, and London's November contract gaining more than 6%.

 

The increases reflected in part a cut by the USDA, in a flagship report, of 0.3 bushels per acre to 44.4 bushels per acre in its estimate for America's soy yields. Traders had expected an increase.

 

The USDA also lowered its forecast for American and global wheat inventories by more than the market had bargained on.

 

However, the main surprise was a cut of 6.7 bushels per acre to 155.8 bushels per acre in the forecast for this year's American corn crop, a reduction three times as large as analysts had expected.

 

The downgrade placed supplies in the world's biggest producer of the grain on course to fall to 902 million bushels in 2010-11. US inventories rarely fall below one billion bushels.

 

And factoring in growing demand for grain, the squeeze on supplies appears even tighter. The so-called "stocks-to-use" ratio – a measure of availability and therefore in turn an indication of prices-is on track to fall below 7% for the first time since 1995-95.

 

The USDA gave few clues to the reasons behind its crop downgrade, merely saying that "forecasted yields decreased from last month throughout much of the Corn Belt", and in particular in Illinois.

 

However, the revision follows considerable speculation of a cut, following disappointing harvest results-the surprise being the extent of the revision.

 

The limit-up rises in Chicago prices left corn for December at US$5.28 ¼ a bushel, narrowly below last month's two-year high.

 

Meanwhile, Rabobank said that the rise in prices prompted by the "wildly bullish" report was likely to "drag the complex higher through the coming weeks."