Corn prices dip on surprise lift to US stocks data

Corn futures extended losses after US farm officials eased concerns over the tightness of US supplies of the grain, eschewing the deep cut in harvest expectations that investors had expected.

But soybean futures bucked the negative trend, after the US crop was downgraded to a nine-year low, a bigger cut than market had forecast.

Closing crop prices

Chicago soybeans (November): $17.45  a bushel, +2.6%

Chicago wheat (December): $8.90 a bushel, +0.8%

London wheat (November): £204.00 a tonne, -0.4%

Paris wheat (November): E260.75 a tonne, -1.0%

Chicago corn (December): $7.69 a bushel, -1.1%

The US Department of Agriculture, in its much-anticipated Wasde crop report, trimmed by 0.6 bushels per acre to 122.8 bushels per acre its forecast for the domestic corn yield this year.

While representing the lowest yield for 17 years, the downgrade fell short of the 2.8 bushels-per-acre cut that investors had expected.

"Lower yields and production in the Corn Belt and central Plains are partly offset by increases elsewhere, particularly across the South," the USDA said.

Furthermore, the forecast for harvested acres, a figure much debated in the run-up to the report given talk of significant areas of drought-hit corn being cut for silage instead of grain, was left unchanged at 87.4m acres.

Brazil vs US 

The data left the US harvest at 10.727bn bushels, 52m bushels below the previous estimate, but well above market expectations.

Analysts had pencilled in a downgrade of 400m bushels.

And, as an extra fillip to hopes for domestic supplies, the USDA lowered its estimates for US corn exports in both 2011-12 and the newly-started 2012-13 season, flagging "increased competition from lower-priced South American supplies".

The estimate for Brazilian shipments was lifted by 1.0m tonnes to a record 15.0m tonnes.

Meanwhile, in a complex set of revisions, a further 75m bushels of demand was reduced from estimates for feed use over 2011-12 and 2012-13.

Market reaction 

The changes fed through into an upgrade to 783m bushels in the USDA forecast for domestic corn inventories at the close of 2012-13, rather than the cut that analysts had expected.

Wasde US corn data, change on previous and (on market forecast)

Harvested acres: 87.4m acres, unchanged, (+1.22m acres)

Yield: 122.8 bushels per acre, -0.6 bpa, (+2.2 bpa)

Production: 10.727bn bushels, -52m bushels, (+347m bushels)

Year-end stocks: 733m bushels, +83m bushels, (+141m bushels)

Data for 2012-13. Sources: USDA, Reuters poll

Officials trimmed their estimate for average US farmgate prices of the grain for the season by $0.30 a bushel to $7.20-$8.60 a bushel, reflecting the improved supplies.

In Chicago, traders marked down futures too, sending the December corn contract to $7.59 a bushel at one stage, the lowest level since late July and a decline of 2.4% on the day.

"Front-end corn takes the biggest hit initially from the feed demand cut and smaller-than-expected production losses," Rory Deverell at broker FCStone said.

December wheat dropped to $8.68 a bushel, a decline of 1.7%, before recovering to return to positive territory, helped by ideas that the USDA will need to make downgrades to world production estimates.

Soybeans bounce

However, soybean futures, which initially being dragged by grains below $17 a bushel, recovered rapidly to positive territory.

Wasde US soybean data, change on previous and (on market forecast)

Harvested acres: 74.6m acres, unchanged, (+153,000 acres)

Yield: 35.3 bushels per acre, -0.8 bpa, (-0.5 bpa)

Production: 2.634bn bushels, -58m bushels, (-23m bushels)

Year-end stocks: 115m bushels, unchanged, (+6m bushels)

Data for 2012-13. Sources: USDA, Reuters poll

The USDA, while keeping its estimate for US soybean inventories at the close of 2012-13 unchanged at 115m bushels, rather than cutting as expected, only did so by cutting the domestic crush level to its lowest since 1996-97 and a downgrade to export expectations "mainly due to lower yields" rather than to competition from other suppliers.

The forecast for the soybean harvest was cut by 58m bushels to 2.634bn bushels, the lowest since 2003 and a bigger downgrade than investors had predicted.

Soybean futures for November closed up 2.6%. "The market isn't fooled by seemingly-bearish unchanged USDA soybean carryout," Mr Deverell said.

'Highly sceptical'

At RJ O'Brien, RIchard Feltes questioned the USDA's decision to stick by its forecast of farmgate soybean prices averaging $15.00-17.00 a bushel in 2012-13, despite the tightened supply outlook the signal of rationing needed to cut export demand.

"Trade will be highly sceptical of cutting more demand without hiking prices further," Mr Feltes said.

Today's crop report suggests that beans will gain on corn," he added.

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