Wheat prices tumbled to a 17-month low, dragging on the corn
market too, after US officials raised their estimates for domestic and world
supplies, citing the impact of a record crop in neighbouring Canada.
The US Department of Agriculture, in its much-watched monthly
Wasde crop report, raised by 10m bushels to 575m bushels (15.6m tonnes) its
forecast for domestic wheat inventories at the end of 2013-14.
While only a small increase, equivalent to 270,000 tonnes, the
rise defied investor expectations of a cut to the stocks estimate, to 540m
bushels, after a strong pace to US early-season exports.
The upgrade reflected the increased expectations for Canada's
crop, highlighted by Statistics Canada last week, which is expected to increase
competition for US hard red spring wheat exports, and boost American imports
from its northern neighbour.
"Record production and higher exports for Canada are
expected to add to wheat supplies in the US," the USDA said.
The USDA furthermore raised its forecast for world wheat
stocks at the close of 2013-14 by more than had been expected, by 4.3m tonnes
to 182.8m tonnes, citing the Canadian crop upgrade, and higher hopes for
Australia's harvest too.
Wasde wheat estimates, change on last and on (market forecast)
US stocks, end-2013-14: 575m bushels, +10m bushels, (+35m bushels)
World stocks, end-2013-14: 182.78m tonnes, +4.3m tonnes, (+3.67m tonnes)
The department also kept its estimate for Argentina's crop at 11.0m tonnes, ignoring a forecast from Buenos Aires officials of an 8.5m-tonne harvest.
The estimate for world consumption was increased by only
1.0m tonnes, reflecting higher ideas for wheat feeding by Canada, Egypt and
South Korea, and increased food use in Bangladesh and Syria.
The impact on markets was to extend losses in wheat futures
in Chicago which, for the best-traded March lot, touched $6.35 a bushel, down
2.4% and a contract low.
It was the weakest for a nearest-but-one contact since June
Kansas City hard red winter wheat and Minneapolis spring
wheat for March also recorded contract lows.
Corn bounce falters
The performance dragged on prices of corn too, despite what
was ostensibly a bullish report for the grain.
Wasde corn estimates, change on last and on (market forecast)
US stocks, end-2013-14: 1.792bn bushels, -95m bushels, (-79m bushels)
World stocks, end-2013-14: 162.46m tonnes, -1.87m tonnes, (-840,000 tonnes)
The USDA cut its forecast for US corn stocks at the close of
the season by 95m bushels to 1.79bn bushels, a bigger downgrade than investors
had expected, and reflecting higher expectations for use by domestic ethanol
plants and livestock feeders.
Nonetheless, early strength in corn prices gave way to a
1.0% drop to $4.33 ¾ a bushel half an hour after the Wasde was released.
The downgraded US stocks estimate "is still a very big
number", Steve Kahler at Teucrium Trading, an issuer of commodity exchange
traded products, said, adding that investors were discounting the higher hopes
for ethanol production too while the US biofuels mandate is under review.
"People are watching to see what happens," with US Environmental
Protection Agency currently proposing a cut in mandated ethanol blending to
about 13m gallons next year, from an initial target of 14.4bn gallons.
'On the tight side'
Soybeans, while feeling some drag from weakness in grains,
did manage some headway, with the USDA downgrading its estimate for US stocks
by a little more than investors had expected, citing the strong pace both of
exports and the domestic crush.
Wasde soybean estimates, change on last and on (market forecast)
US stocks, end-2013-14: 150m bushels, -20m bushels, (-3m bushels)
World stocks, end-2013-14: 70.62m tonnes, +390,000 tonnes, (-1.0m tonnes)
"Soybean exports are increased 25m bushels to 1.475bn bushels
reflecting record commitments through November," the USDA said.
Mr Kahler told Agrimoney.com that the downgraded US soybean
stocks figure, of 150m bushels, was "on the tight side", and raised the
pressure on South American harvests to bolster world supplies.
In fact, the USDA kept at 88.0m tonnes its estimate for the
Brazilian crop, defying expectations of an upgrade which were given fuel
earlier on Tuesday when Brazil's Conab bureau pegged domestic production in 2013-14
at 90.2m tonnes.