Corn, wheat prices dip after US lifts supply hopes

Corn futures closed lower after US farm officials lifted estimates for both US and world supplies of the grain in contrast to cuts to expectations for inventories of soybeans, which managed a strong finish in Chicago.

The US Department of Agriculture, in its much-watched monthly Wasde crop report, surprised investors by raising its estimate for the domestic corn harvest by 80m bushels to a record 13.843bn bushels, rather than making the small downgrade they had expected.

The revision reflected a upgrade of 0.9 bushels per acre, to a four-year high of 155.3m bushels per acre, in the yield estimate, with USDA officials noting that the crop was in far better condition than a year ago "despite soil moisture concerns".

Although the US had used up more corn in the newly-finished 2012-13 season than officials had thought, in making ethanol and in exports, the extra output prompt the USDA to lift its estimate for domestic inventories at the close of 2013-14 by 18m bushels.

It also, unexpectedly, raised its forecast for world inventories, highlighting too lower consumption in Canada, which is enjoying a bumper wheat harvest.

Canada upgrade

Indeed, the USDA cited an upgrade to its estimate for the Canadian wheat crop to a 22-year high of 31.5m tonnes as a key reason behind its decision to lift its estimate for world wheat production to a record 708.9m tonnes.

Wasde corn data, 2013-14, change on last and (on market forecasts)

US yield: 155.3 bushels per acre, +0.9 bpa, (+1.6 bpa)

US stocks, end of season: 1.855bn bushels, +18m bushels, (+123m bushels)

World stocks, end of season: 151.42m tonnes, +1.25m tonnes, (+4.49m tonnes)

Sources: USDA, Reuters poll

"Production is raised 2.0m tonnes for Canada as cool July weather supported flowering and reproduction, and abundant soil moisture and favourably warm, dry weather in August aided grain fill and maturity across the Prairie provinces," the department said.

With the estimates for European Union and Ukraine harvests also upgraded, the estimate for world stocks at the end of this season was lifted by 3.3m tonnes to 176.3m tonnes.

This included a small upgrade to the forecast for US inventories, reflecting increased imports from Canada.

'Pretty bearish'

The immediate impact on markets was to send futures in both grains lower.

Chicago's benchmark December corn lot tumbled more than 3% at one point to hit 4.56 a bushel, the contract's lowest for nearly a month, and down more than 10% from a high reached in late August.

This is a "pretty bearish report" for corn, said Zach Cofflet, analyst at broker Market 1.

However, helped by strength in soybeans, in which prices were lifted by Wasde revisions, December corn recovered ground to close at $4.66 a bushel in Chicago, a decline of 1.3%.

Soybeans which soared 2.8% to close at $13.96 a bushel for November delivery, the contract's best close in a year.

'Both supply and demand strong'

December wheat revived from negative territory to close at $6.53 a bushel, a gain of 0.7%.

Wasde soy data, 2013-14, change on last and (on market forecasts)

US yield: 41.2 bushels per acre, -1.4 bpa, (in line)

US stocks, end of season: 150m bushels, -70m bushels, (-15m bushels)

World stocks, end of season: 71.54m tonnes, -730,000 tonnes, (+373,000 tonnes)

Sources: USDA, Reuters poll

"The world is seeing record wheat production, but that is being offset by strong world demand," said Steve Kahler, chief operating officer at Teucrium Trading, an issuer of commodity exchange traded products.

US wheat exports have reached 56% of the USDA estimate for 2013-14 only three months into the marketing year. 

Need for soaking rainfall'

Soybean prices found strength in a downgrade to expectations for domestic, and world, supplies thanks to the dent to US crop hopes from dryness which has been a bigger threat to the oilseed, thanks to its development cycle, than corn.

The USDA, flagging talk on farms of "the need for soaking rainfall to benefit soybeans in the pod-filling stage", cut by 1.4 bushels per acre to 41.2 bushels per acre its forecast for the yield, a downgrade bang in line with analyst forecasts.

However, with officials making relatively small downgrades to estimates for US soybean consumption, the revisions limited the estimated rebuild in domestic inventories of the oilseed to only 25m bushels, taking year end-stocks to 150m bushels (4.1m tonnes), still a historically low figure.

The inventory forecast was "below the average trade guess", Mr Cofflet said, adding that it "goes along with market thoughts of the rough August weather and the toll on soybeans".

Brazil takes top spot

Indeed, the revised estimates demoted the US below Brazil to second rank in world soybean producers, with high prices of the oilseed seen encouraging farmers in the South American country to ramp up sowings in the forthcoming planting season.

Wasde wheat data, 2014-14, change on last and (on market forecasts)

US stocks, end of season: 561m bushels, +10m bushels, (+10m bushels)

World stocks, end of season: 176.28m tonnes, +3.29m tonnes, (+3.52m tonnes)

Sources: USDA, Reuters poll

"Recent price strength and a weaker real are expected to provide incentives for [Brazilian] soybean producers to increase area by 4% from last year," the USDA said.

The department lifted to $11.50-13.50 a bushel, from $10.35-12.35 a bushel, its forecast for the price that farmers will receive for their soybeans adding some $2.4bn to the value of the crop.

Brazil to overtake US as top soybean grower
Will the Wasde make big changes to soy, corn estimates?
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events