PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:05 UK, 10th May 2017, by Mike Verdin
Corn, wheat prices gain as US data spur ideas of market 'paradigm shift'

Corn and wheat futures recovered from early losses as a much-watched US report forecast an end to the build in world grain supplies, although soybeans struggled to follow suit, on upgrades to world stocks expectations.

Corn futures for July gained 2.0% in Chicago at one point, after the US Department of Agriculture, in its first estimates for world crop balance sheets in 2017-18.

July wheat futures recovered from negative territory in the run up to the data to stand up 1.4% on the day.

The gains reflected USDA expectations, released in its Wasde crop report, that world grain stocks will fall back next season, after a five-year spell in which they have soared more than 50% to record highs spurred by a run of bumper harvests.

Corn futures for July closed at $3.73 a bushel, a gain of 1.8%, while wheat futures for July ended up 0.8% at $4.31 a bushel.

'Paradigm shift'

However, soybean futures managed only a short-lived price, with bullish sentiment at a lower-than-expected estimate for US inventories of the oilseed at the close of 2017-18 offset by increased ideas of ongoing South American harvests.

Wasde corn data, change on current estimate and (on market forecast)

US stocks, end 2016-17: 2.295bn bushels, -25m bushels, (-31m bushels)

US stocks, end 2017-18: 2.110bn bushels, n/a, (-12m bushels)

World stocks, end 2016-17: 223.9m tonnes, +920,000 tonnes, (+580,000 tonnes)

World stocks, end 2017-18: 195.27m tonnes, n/a, (-124.45m tonnes)

Sources: USDA, Reuters,

World oilseeds stocks were seen ending next season, essentially, flat, after their own expansion of more than 50% since 2011-12.

"Corn futures should gain on soybeans due to the 2017-18 carryover [stocks] figures," said Mike Zuzolo at Global Commodity Analytics, adding that the USDA data represented a marked change in market dynamics.

"Corn stocks are falling and soy stocks are rising - this is a paradigm shift from the last three years."

Soybean futures for July ended 0.4% lower at $9.70 a bushel.

US vs South America

US corn stocks were viewed by the USDA as ending next season at 2.11bn bushels (53.6m tonnes), a little below the figure traders had pencilled in, with forecasts of a weaker harvest and stronger ethanol demand more than offsetting an expected decline in exports on stronger South American competition.

Wasde wheat data, change on current estimate and (on market forecast)

US stocks, end 2016-17: 1.159bn bushels, unchanged, (-3m bushels)

US stocks, end 2017-18: 914m bushels, n/a, (-20m bushels)

World stocks, end 2016-17: 255.35m tonnes, +3.09m tonnes, (+3.19m tonnes)

World stocks, end 2017-18: 258.29m tonnes, n/a, (+12.14m tonnes)

Sources: USDA, Reuters,

"A 1.0-bn-bushel year-over-year increase in the combined corn exports of Brazil and Argentina," following strong results from their ongoing harvests, "is expected to cut into the 2017-18 US shipping season," the USDA said.

World corn stocks were seen ending 2017-18 at a four-year low of 195.3m tonnes, significantly lower than the figure that the market had expected, although the extent of the decline largely reflected expectations of Chinese success in a drive to cut its corn inventories.

While China's corn production this year was seen declining, on reduced sowings, "on the demand side, feed and residual use is expected to increase based on continued relatively low internal market prices and reduced imports of corn substitutes," the USDA day.

China has slapped hefty duties on US import of distillers grains (DDGs), the corn-derived feed ingredient, amid claims of unfair subsidies.

'Late-April snowstorm'

Wheat stocks, meanwhile, were seen falling in the US next season to a three-year low of 914m bushels (24.9m tonnes), again a lower figure than investors had expected.

Wasde soy data, change on current estimate and (on market forecast)

US stocks, end 2016-17: 435m bushels, -10m bushels, (-3m bushels)

US stocks, end 2017-18: 480m bushels, n/a, (-83m bushels)

World stocks, end 2016-17: 90.14m tonnes, +2.73m tonnes, (+2.61m tonnes)

World stocks, end 2017-18: 88.81m tonnes, n/a, (+2.22m tonnes)

Sources: USDA, Reuters,

The USDA estimated the domestic wheat harvest at 1.82bn bushels (49.5m tonnes) a slump of 22% year on year and the lowest in 11 years, reflecting ideas of lower sowings and yields, and higher area abandonment, than last year.

"Winter wheat benefited from diminishing drought conditions in the Plains and Midwest," the USDA said.

"However, a late-April snowstorm affected large portions of the hard red winter wheat belt, especially western Kansas."

Forecast price rise

Although world wheat stocks were seen growing over 2017-18 to a fresh record high of 258.3m tonnes, defying market expectations of an inventory decline, the increase reflected a stockbuild in China, where the focus on corn consumption was seen undermining wheat use.

Wheat inventories held by the five major exporters which, in being readily available to the world market, are seen as particularly important to prices - were forecast falling to a four-year low.

The USDA forecast farmgate US wheat prices next season at $3.85-4.65 a bushel, "up $0.35 from the previous year's low level".

'Neutral to bearish'

By contrast, while US soybean stocks were seen rising by less than the market had expected in 2017-18, an initial boost to futures faded as investors focused on upgrades to the ongoing South American harvests.

The build in world grain and (oilseed) stocks

2017-18: 479.7m tonnes, (100.79m tonnes)

2016-17: 514.8m tonnes, (101.71m tonnes)

2015-16: 491.2m tonnes, (90.37m tonnes)

2014-15: 464.0m tonnes, (93.04m tonnes)

2013-14: 405.8m tonnes, (77.99m tonnes)

2012-13: 341.4m tonnes, (68.34m tonnes)

Source: USDA

The soybean data were "neutral to bearish", said Terry Reilly at broker Futures International, flagging that  

"2016-17 world production and stocks estimates were upward revised 2.1m tonnes and 2.7m tonnes respectively".

The USDA forecast farmgate US soybean prices at $8.30-10.30 a bushel next season.

The $9.30-a-bushel midpoint implies a drop of $0.25 a bushel in values year on year.

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