US eases fears for grain, oilseed supply squeeze

Grain and soybean prices went into retreat after US officials eased concerns over the squeeze on world crop supplies, raising its estimates for world supplies of both cereals and oilseeds.

Investors had expected the US Department of Agriculture had, in its benchmark monthly Wasde report, to nudge higher forecasts for domestic inventories of corn, soybeans and wheat, as of the close of 2012-13.

However, the Wasde upgrades to estimates for domestic stocks, while still moderate, came in ahead of broker predictions.

And the USDA raised too forecasts for world supplies of the crops - even wheat, for which weather setbacks to crops in Argentina and Australia, the top southern hemisphere producers, had prompted expectations of a further trim to the inventory figure.

Price reaction

The market impact was to send Chicago wheat, which had been holding the $9.00-a-bushel market before the data, to a loss of 1.8% on the day.

Crop prices at close

Paris wheat, January: E277.00 a tonne, +0.5%

Chicago corn, December: $7.38 a bushel, -0.2%

Chicago wheat, December: $8.86 a bushel, -1.8%

Chicago soybeans, November: $14.51 a bushel, -3.1%

Corn retreated from a small gain to post a lower close too, despite talk of a large Japanese import order of US supplies, and upbeat comments from Morgan Stanley.

Soybeans for January dropped to a  four-month low, falling more than 3%.

In Europe, Paris wheat for January maintained positive territory but remained well below the E279.25 a tonne it reached earlier and which matched a contract high.

'Benefit of late-season rainfall'

The ideas of easier supplies reflected in part bigger-than-expected upgrades to yield figures for both US corn and soybean crops this year.

Wasde corn data, change on last and (on market estimates)

Yield: 122.3 bushels per acre, +0.3 bpa, (+0.3 bpa)

Production: 10.725bn bushels, +19m bushels, (+78m bushels

Year-end stocks: 647m bushels, +28m bushels, (+13m bushels)

Sources: USDA, Bloomberg, Reuters

The estimate for the soybean yield was lifted by 1.5 bushels per acre to 39.3 bushels per acre, implying a drop of only 6% year on year, a far smaller fall than initially feared.

Soybean crops in "several states show the benefit of late-season rainfall", the USDA said.

While extra purchases by China, the top soybean importer, were set to swallow much of the extra supplies, the additional shipments were seen being stockpiled rather than consumed.

The department also in the oilseeds sector raised its estimate of the European Union rapeseed harvest, and hiked by 2.5m tonnes its forecast for vegetable oil inventories at the end of 2012-13, reflecting in the main extra Indonesian palm oil stocks.

Wheat stocks rise

In wheat, the department cut its forecast for the Australian harvest by 2.0m tonnes to 21.0m tonnes, as many traders had expected, saying "a continuation of dryness through September during critical flowering and grain-fill stages has reduced yield potential for this year's crop".

Wasde soy data, change on last and (on market estimates)

Yield: 39.3 bushels per acre, +1.5 bpa, (+1.1 bpa)

Production: 2.971bn bushels, +111m bushels, (+79m bushels

Year-end stocks: 140m bushels, +10m bushels, (+7m bushels)

Sources: USDA, Bloomberg, Reuters

However, it kept at 11.5m tonnes its forecast for the rain-hit Argentine harvest, above an estimate of 10.12m tonnes restated by the Buenos Aires grains exchange on Thursday.

And the USDA lowered by 2.5m tonnes its figure for world use of wheat in livestock feed, with European Union, Indian and Russian farmers especially expected to hold back.

The revisions left the figure for world wheat stocks at the close of 2012-13 at 174.2m tonnes, an upgrade of 1.2m tonnes and 3.6m tonnes above the number investors had expected.

'Decidedly negative'

The data were viewed as "negative to neutral" for prices by US Commodities, which said that Chicago now represented a "leaking lower market with one eye on South America", where sowings for crops to be harvested early in 2013 are ongoing.

At RJ O'Brien, Richard Feltes said that the USDA's upgrades to US soybean yield and production were the "largest ever" for a November Wasde report, while terming as "decidedly negative" the upgrades to estimates world crop stocks of the major crops.

However, at Teucrium Trading, the New York-based issuer of crop-based exchange traded products, chief operating officer Steve Kahler said that the revisions were nonetheless "within the realms of expectations" and still left supplies "tight".

Furthermore, while investors a year ago also been expecting South American to replenish depleted world soybean supplies, "in December it became very, very dry", devastating harvest prospects.

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