USDA Raises Predictions for Corn, Soybean Supplies

End-of-season corn inventories in the U.S. won't be as tight as previously expected, federal forecasters said, easing supply concerns that had driven prices to record highs.

Crop futures tumbled on the forecast, with corn dropping the maximum amount allowed under exchange rules. The grain fell to its lowest level since March 31 when a federal inventory report shocked traders and fueled corn's climb to an all-time price high of more than $7.80 a bushel.

"For the short term, I think it definitely is an end to the bull market," said Terry Reilly, grains analyst at Citigroup in Chicago.

The U.S. Department of Agriculture, in Wednesday's monthly crop report, raised its forecast for U.S. corn supplies as of Aug. 31 to 730 million bushels, an 8% increase from last month's estimate. The agency also increased its outlook for U.S. soybean inventories. Driving the increases is a recent pullback in export demand as high prices cool interest among foreign buyers.

Many traders and grain buyers expected the USDA to keep its forecast for corn unchanged, particularly since last month's report was widely viewed as underestimating demand.

Corn for July delivery, the most actively traded contract, settled 30 cents, or 4.2%, lower at $6.7725 a bushel at the Chicago Board of Trade. Single-day declines are limited to no more than 30 cents under exchange rules. Contracts for soybean futures settled 0.5% lower at $13.3175 a bushel, while wheat futures fell 5% to $7.59 a bushel.

"There is nothing friendly about today's report," said Joseph Vaclavik, a broker for MF Global in Chicago. "A cut in exports for both commodities is an indicator that demand may be softening at high price levels."

Federal forecasters reduced the outlook for corn imports by Canada and countries in the former Soviet Union. For soybeans, the USDA dropped its estimate for imports by China, the world's top buyer of the oilseed, fueling a 21% increase in expected end-of-season soybean inventories over last month's estimate.

The setback in corn futures, however, could be short-lived if wet weather keeps farmers from getting their crops in the ground this spring or severe weather hurts crops this summer. And although raising its supply estimate, the USDA is still projecting a 15-year low in end-of-season supplies. Mr. Reilly of Citigroup projects corn prices could climb to $9 a bushel to $10 a bushel if poor global weather reduces output.

Meanwhile, the USDA projected world wheat production in the crop year ahead at 669.6 million tons, up 3.3% from the previous year. Global wheat inventories aren't low, but grain users are worried about tightening supplies of high-quality grain after a series of weather problems last year.

In the U.S., winter wheat production is expected to total just 1.42 billion bushels, a 4% drop from last year, due to a severe drought in the southern Plains. Farmers in the region grow good-quality, hard red winter wheat, which is milled into flour used to bake bread. Production of soft red winter wheat, though, is expected to increase this year thanks to better growing weather in the Midwest and Mississippi Delta, where the crop is grown. The forecast was likely made before widespread flooding by the Mississippi River affected thousands of acres of farmland.

(Source: http://online.wsj.com/article/SB10001424052748703730804576317061264426484.html)