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Grains' bull run isn't over yet

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The better prospects for US corn supplies have tipped the balance of power on grain markets some way back towards buyers.

But farmers have not lost all their bargaining clout. While they will have to get used to lower-flying grain prices, markets will need more than Thursday's data surprises to bring them all the way back to earth.

Extra supplies

Sure, there it now looks like there will be more corn around. (And it is corn, for which supplies have been genuinely tight, which has driven the later stages of the grain market rally. Wheat, especially lower quality stuff, is in relative abundance.)

The US Department of Agriculture found 1.5m acres more corn than analysts had expected. At the given abandonment rate, and forecast yield this year, that is equivalent to an extra 270m bushels of production.

Add that to the supplies the USDA had been expecting, and it takes inventories near to the psychologically important 1bn-bushel mark at the end of 2011-12. And that's before making an allowance for the bigger-than-expected corn inventories found in American elevators at the start of this month month.

...but not that many

Even so, that doesn't make corn abundant. The highest stocks-to-use ratio – a key measure of the readiness of supplies, and therefore of pricing potential - that can be readily drawn from the new data is 10%.

That implies stocks are still set to end 2011-12 among the tightest handful of the last 50 years.

And that makes a number of assumptions.

One is that the USDA made the right calls on Thursday. Many of the department's statistics are controversial, but this batch has attracted an unusually large range of criticism that it fails to take a big enough account of the wet spring sowing period, or of anecdotal evidence of tight corn supplies.

Nor does the estimate for abandoned acres appear to have taken account of all the losses to river flooding, representing only a marginally lower harvesting rate - less than 300,000 acres worth - than last year's.

Another assumption is that crops don't encounter any yield setbacks. The USDA's estimates for last year's corn harvest sank by more than 900m bushels between June and the final tally.

Not over, yet

Of course, revisions can go either way.

But with corn acres looking pretty maxed out as it is, and lower prices potentially encouraging consumption too, it looks like the greater risk is of a pull back to corn supply hopes.

The USDA may have knocked some nails into the coffin of the grain market rally. But it has not delivered a fatal blow.

Buyers face more of a battle yet to regain their former dominance over producers.


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