Wheat prices extended losses, hitting a five-month low in Chicago, after US farm officials ditched expectations of a drop in domestic inventories this season, citing "higher expected competition" in export markets.
Wheat futures for March delivery fell 3.2% to close at $8.21 ½ a bushel in Chicago, the contract's lowest since early July, while Paris's benchmark January lot dropped 1.8% to E261.75 a tonne, its weakest finish since October.
The declines followed an upgrade by the US Department of Agriculture of 50m bushels to its forecast for domestic wheat inventories at the close of 2012-13.
The revision was bigger than investors had expected, and meant that US wheat stocks now look on course to rise during the season, despite extra demand for the grain as feed, following this year's dismal corn harvest.
The upgrade reflected "the slow pace of sales and shipments to date [in 2012-13] and higher than expected competition from foreign supplies", the USDA said, cutting by 50m bushels (1.4m tonnes) to 1.05bn bushels (20.5m tonnes) its forecast for US wheat exports.
Wasde wheat stocks data, end 2012-13, change on last and (on market expectation)
US stocks: 754m bushels, +50m bushels, (+42m bushels)
World stocks: 176.95m tonnes, +2.77m tonnes, (+3.4m tonnes)
Indeed, EU livestock producers are set to turn increasingly to corn, for which the bloc's feed use estimate was hiked by 1.5m tonnes, as was the forecast for imports which, at 8.0m tonnes, are set to hit a figure beaten only once in the last 25 years.
The switch contributed to a rise of 2.8m tonnes, to 177.0m tonnes, in the USDA estimate for world wheat inventories at the close of 2012-13, again a figure higher than the market had expected.
"The USDA surprises the trade once again by increasing world wheat stocks more than expected," Richard Feltes at broker RJ O'Brien said.
However, the department, in a more bullish turn, trimmed its estimate for world corn stocks rather than increasing the figure as investors had expected, and despite a huge upgrade to a record 208.0m tonnes in China's harvest number.
Wasde corn stocks data, end 2012-13, change on last and (on market expectation)
|US stocks: 647m bushels, unchanged, (-16m bushels)World stocks: 117.61m tonnes, -380,000 tonnes, (-400,000 tonnes)|
The extra output was offset in part in world terms by downgrades to crops in Argentine and Ukrainian crops, besides being swallowed up in extra consumption.
The USDA also surprised investors by keeping its estimate for US corn exports at 1.15bn bushels, despite a poor start to the season which has led many observers to propose a final figure below 1bn bushels.
Corn futures outperformed wheat, falling by a relatively modest 0.3% to $7.28 a bushel for March delivery.