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Grains plunge again, after US lifts supply hopes

Grain futures extended losses after a much-watched farm report raised expectations for world supplies well above market expectations, backed by bigger-than-forecast upgrades to US soybean and wheat crops.

December corn futures set a fresh contract low of $3.85 a bushel in Chicago, falling nearly 2%, with November soybean futures also hitting their lowest ever in falling nearly 2% to $10.65 a bushel.

September wheat futures plunged more than 3% to $5.30 a bushel in Chicago, the lowest for a nearest-but-one contract in four years.

In Europe, November feed wheat fell in London to 130.50 a tonne, the weakest for a spot contract in four years, while Paris November milling wheat hit E181.25 a tonne, the lowest in two and a half years. 

The declines followed the release by the US Department of Agriculture of fresh crop estimates which showed both domestic and world supplies of corn, soybean and wheat supplies at the close of 2014-15 to levels above market expectations.

'Abundant soil moisture'

For wheat, the increase of 930,000 tonnes to 189.54m tonnes in the estimate for world stocks at the close of the season was led by an upgrade of 86m bushels (1.36m tonnes) to 660m bushels in the estimate for US inventories.

USDA wheat estimates, change on previous and (on market forecast)

US ending stocks 2014-15: 660m bushels, +86m bushels, (+69m bushels)

World ending stocks 2013-14: 184.29m tonnes, -1.75m tonnes, (-1.45m tonnes)

World ending stocks 2014-15: 189.54m tonnes, +930,000 tonnes, (+1.17m tonnes)

Sources: USDA, ThomsonReuters

That figure was well above forecasts, and reflected in part ideas of strong competition on export markets, but also the impact of good weather in boosting US spring wheat prospects.

"The hard red winter wheat crop was damaged by drought and April freezes in the southern and central Plains," the USDA said

"However, the hard red spring wheat crop in the northern Plains has benefitted from abundant soil moisture and cooler-than-normal early summer temperatures."

Yields for both durum, the type used in making pasta, and conventional spring wheat are "forecast to be above average".

Bigger inventories

For soybeans, the USDA surprised investors by lifting its estimate for US inventories at the close of this season to 140m bushels, again beating market expectations, reflecting the larger-than-forecast supplies revealed in a June 30 report.

USDA soybean estimates, change on previous and (on market forecast)

US ending stocks 2013-14: 140m bushels, +15m bushels, (+12m bushels)

US ending stocks 2014-15: 415m bushels, +275m bushels, (-3m bushels)

World ending stocks 2013-14: 67.24m tonnes, +70,000 tonnes, (-350,000 tonnes)

World ending stocks 2014-15: 85.31m tonnes, +2.43m tonnes, (+520,000 tonnes)

Sources: USDA, ThomsonReuters

The estimate for domestic inventories at the close of 2014-15, at 415m bushels, was actually in line with forecasts - with strong expectations for exports and domestic consumption seen mopping up extra supplies both carried over from the season and from a record harvest, upgraded to 3.8bn bushels.

The harvest projection, lifted by 165m bushels from last month, was in line with expectations, after a separate USDA report on June 30 unveiled bigger plantings than forecast.

And, as an extra blow for soybean prices, the USDA cut by 1m tonnes to 72m tonnes its forecast for imports by China, the top buyer of the oilseed, in 2014-15.

'Outlook for record yields'

For corn, the estimate for US inventories at the close of 2014-15, while lifted by 75m bushels to 1.80bn bushels, was also higher than investors had expected, reflecting reduced ideas for feed use of the grain.

USDA corn estimates, change on previous and (on market forecast)

US ending stocks 2013-14: 1.246bn bushels, +100m bushels, (+14m bushels)

US ending stocks 2014-15: 1.801bn bushels, +75m bushels, (+27m bushels)

World ending stocks 2013-14: 173.42m tonnes, +4.37m tonnes, (+3.94m tonnes)

World ending stocks 2014-15: 188.05m tonnes, +5.4m tonnes, (+3.52m tonnes)

Sources: USDA, ThomsonReuters

And this came without an upward revision to the US yield estimate, which many had expected, given that weather has been beneficial for corn crops, as well as spring wheat.

"Favourable early July crop conditions and weather support an outlook for record yields across most of the Corn Belt," the USDA said.

"However, for much of the crop, the critical pollination period will be during middle and late July."

The world stocks figure was upgraded by 7.4m tonnes to 188.1m tonnes, reflecting also a 2m-tonne upgrade to the estimate for China's harvest, and ideas of higher Brazilian inventories left over from 2013-14.

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