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Grain prices revive after US cuts supply estimates

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Grain futures put in a positive close to the week, but ended well off intraday highs, after the US, in a long-awaited report, cut hopes for supplies and - for corn - forecast "strong and volatile prices well into summer".

Wheat futures initially soared nearly 4% in Chicago after the US Department of Agriculture cut its estimate for domestic inventories at the close of 2012-13 by 38m bushels (1.0m tonnes), to 716m bushels (19.5m tonnes), a bigger drop than investors had expected.

And the data cast doubt on ideas of a bumper crop in 2013 too, in dashing forecasts of a jump in US winter wheat seedings.

The USDA pegged winter wheat seedings at 41.8m acres, 867,000 acres fewer than investors had expected.

At Country Futures, Darrell Holaday, terming the data "hard to believe", termed the sowings figure a "big number" which appeared to reflect the persistent US drought.

"Were the drought conditions bad enough discourage planting? According to USDA, the answer is yes," Mr Holaday said.

Corn squeeze

For corn, the USDA revealed that domestic inventories at the start of last month were, at 8.03bn bushels, down 17% year on year and some 180m bushels fewer than investors had banked on.

Wasde US corn data, 2012-13, change on previous figure, and on (market forecast)

Yield: 123.4 bushels per acre, +1.1 bushels per acre, (+0.8m acres)

Area harvested: 87.4m acres, -0.3m acres, (+0.4m acres)

Output: 10.78bn bushels, +55m bushels, (+115m bushels)

December 1 2012 stocks: 8.03bn bushels, n/a, (+250m bushels)

Marketing year end stocks: 602m bushels,-45m bushels, (-65m bushels)

Sources: USDA, Reuters

Some of Friday's data was more supportive to supply hopes, with the forecast US exports in 2012-13 slashed following a weak start to the season.

"Corn exports are projected 200m bushels (5.1m tonnes) lower, reflecting the slow pace of sales and shipments to date, and increased pressure from larger supplies and exports from South America," the USDA said.

Nonetheless, the estimate for US corn stocks at the close of the season was cut by 45m bushels (1.1m tonnes) to 602m bushels (15.3m tonnes) – the lowest figure for 17 years, and contrasting with market expectations of an increase.

'Unsustainable pace'

Chicago corn prices following wheat in gaining more than 3% at one point, with the USDA supporting ideas that the supply squeeze meant no imminent end to the period of elevated values.

"While stiff competition has limited US corn exports, higher domestic disappearance leaves the balance sheet historically tight and is expected to support continued strong and volatile prices well into summer, particularly in the domestic cash markets," the USDA said.

And this analysis was echoed by private commentators, including Rabobank, which said that "the drawdown in grain stocks confirmed our expectations that feed use has continued at an unsustainable pace and higher prices are needed in order to ration demand".

Late pullback

However, prices of both corn and wheat eased into the close, with brokers citing reasons ranging from the index fund rebalancing process to the impact of disappointing winter wheat sowings on improving area available for spring crops.

USDA US wheat data, 2012-13, change on last year, and on (market forecast)

December 1 2012 stocks: 1.66bn bushels, unchanged, (in line)

Marketing year end stocks: 716m bushels,-38m bushels, (-25m bushels)

Winter wheat sowings: 41.820m acres, +496,000 acres, (-867,000 acres)

Sources: USDA, Reuters

Chicago's benchmark March corn lot ended 1.4% higher at $7.08 ¾ a bushel.

Chicago wheat for March closed 1.4% higher at $7.54 ¾ a bushel.


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