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Sharp fall in US corn stocks revives grain prices
By Agrimoney.com - Published 28/09/2012

Corn futures soared the maximum daily limit, with wheat posting a 5% rise too, after the US said that its stocks of both grains fell last season more steeply than investors had expected, in a report which maintained its knack for surprises.

The US Department of Agriculture, in a much-anticipated report on crop inventories at the start of this month, pegged corn stocks at 988m bushels (25.1m tonnes), a decline of 12.1% year on year.

The figure for a date which marked the close of the 2011-12 crop year also represented the lowest carryout for eight years, and was 125m bushels short of the figure that analysts had forecast.

The decline - the biggest shortfall from market expectations on record for a September stocks report, according to broker RJ O'Brien - reflected a tumble in inventories held outside farms, at sites such as elevators.

Stocks on farm held steady year on year.

Prices bounce 

The impact on prices was to send Chicago's December corn futures contract - which had earlier dropped to its lowest for more than two months - up the daily trading limit of \$0.40 a bushel.

Crop prices at close

Chicago corn (December): \$7.56  a bushel, +5.6%

Chicago wheat (December): \$9.02 a bushel, +5.5%

Paris wheat (November): E266.75 a tonne, +3.0%

Chicago soybeans (November): \$16.01 a bushel, +1.9%

Chicago live cattle (December): 124.60 cents a pound (-0.5%)

The rebound heped prices of fellow grain wheat too, for which inventories were also lower than expected. Futures recovered from levels marginally above its two-month low to 2% post gains.

However, the stocks data was deemed negative for livestock markets, in implying higher prices for feed. 

Many investors had prepared for a large corn stocks figure which, in indicating more generous supplies, would have been viewed as negative for prices.

Indeed, the USDA's previous two September 1 inventory report had found more corn than investors expected, prompting sharp price drops.

The prospect of the department again turning up larger stocks than forecast was seen as a big factor fuelling corn's recent price pullback from last month's record high.

Soybean surprise

Nonetheless, the report did maintain its reputation for surprises, but this time in soybeans, for which the inventory number at the start of the month, which also marks the change of marketing years for the oilseed, standing at 169m bushels.

US crop stocks, Sept 1, change on year and (on market forecast)

Corn: 988m bushels, -140m bushels, (-125m bushels)

Soybeans: 169m bushels, -46m bushels, (+38m bushels)

Wheat: 2.103bn bushels, -175m bushels, (+38m bushels)

Sources: USDA, ThomsonReuters poll

While down 21% year on year, investors had expected a sharper drop, thanks to strong demand for the crop from both domestic and foreign investors, spurred by the dearth of alternative supplies following drought hits to South American crops at the start of this year.

However, the USDA said that its production last year had been underestimated, thanks to higher sowings than had been thought, a lower crop abandonment rate and a bigger yield than thought too.

The 2011 harvest was pegged at 3.094bn bushels, some 38m bushels higher than the previous estimate.

The initial market reaction to the data was to send soybean prices down nearly to the lowest since early July before futures recovered most of their losses, helped by the announcement of a further sale of the oilseed to China, of 180,000 tonnes, taking the total in two days nearly to 300,000 tonnes.

'Very strong demand'

The grain inventory data signalled that feed usage of corn and wheat was larger than the market, and officials, had factored in, commentators said.

The report showed that corn use for feed in the three months to September 1 was 330m bushels, with wheat's at 122m bushels, according to broker US Commodities.

At Teucrium Trading, a New York-based exchange traded funds group, Sal Gilbertie said that the data showed "very strong demand", highlighting that inventories had fallen faster than expected despite an early harvest bringing competition from the 2012 crop on line.

"The bottom line is that a lot of corn has disappeared in the face of an early harvest and very high prices," he said.

Prices which for corn and soybeans set record over the summer "do not seem to have had the affect on demand the market thought it would".

Price low in place?

Indeed, some brokers the statistics may have set the ground for grain prices to set a seasonal low point nearly to the same day as in 2011.

"The market is trading very similar to last year, which was also a short crop year," US Commodities said.

"Last year from the end of August to the first week of October, the market dropped roughly \$1.80 a bushel on corn and \$3.00 a bushel on soybeans.  The market a year ago bottomed on October 3." 

Benson Quinn Commodities said: "At a minimum, this morning's data offers a great opportunity for these markets to post a correction of the recent break," adding that "at this point, sustained support in corn and wheat will likely offset the any potential weakness" in soybean futures.

Warning to speculators

Indeed, the broker cautioned investors to be "very careful" before betting on soybean prices posting further losses, despite the larger-than-expected inventories.

"Don't lose sight of the fact that the soybean market is down over \$2.00 from the all-time highs.

"The fund may have more soybeans to liquidate, but commercial buyers/end users can very likely find value near these levels.

"With corn and wheat performing well, the speculator should be very careful pressing soybeans near these levels."

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