Corn prices dive on US acreage, stocks shocker

Reuters

WASHINGTON/CHICAGO - Reports showing a surprisingly large US corn crop and bigger-than-expected stockpiles alleviated fears that Midwest flooding would take a heavy toll on grain output, sending corn futures sharply lower and alleviating some concerns about global food prices.

Corn was felled by a one-two punch from the US Department of Agriculture's annual acreage and quarterly grain stocks reports, which showed ample supplies despite months of fretting over dwindling stockpiles which drove corn prices to record highs in recent weeks.

"American producers stepped up," US Agriculture Secretary Tom Vilsack told Reuters Insider, noting technology has boosted yields and mitigated concerns about tight world grain supplies.

Sky-high prices curbed demand, leaving June 1 stockpiles 11 per cent larger than traders had predicted.

The news could help ease price shocks that have rippled through to the bottom lines of US food makers and contributed to calls to limit commodity market speculation which many blame for driving prices higher and fanning global inflation.

General Mills and other companies that use US crops to make food have blamed high commodity prices for inflating costs and hurting earnings.

The harvest, however, is two months away. So there is still uncertainty about the toll of rain and flooding on crops, and grain markets remain volatile.

"I don't know if this piece of news is enough to completely take away the cost pressures," said Morningstar analyst Erin Lash.

"This is historic"

The report caused havoc in trading pits at the Chicago Board of Trade on Thursday, where corn for July delivery settled 10 per cent lower at $US6.29 a bushel -- a record decline by value and per centage -- and deferred contracts locked down the limit of 30 cents per bushel.

The July contract is in its delivery period and trading without limits.

With futures halted, traders rushed to the options pit, where panicked trading indicated prices could plunge again on Friday.

"There is nothing like this on the chart," said Rich Feltes, a veteran grain analyst with R.J. O'Brien, who has watched the market rise and fall for more than 35 years.

"This is historic," he said.

Before the report, corn prices had already slid 20 per cent from their peak near $US8 per bushel reached three weeks ago.

There was added drama for algorithmic traders.

A technical equipment glitch in USDA's guarded lock-up room led to the release of information by Reuters and other wire services two minutes earlier than scheduled, throwing off some computer programs.

"This is scandalous. Paris was the only market open when the USDA (data) was released. We had no warning that the report would be released earlier than scheduled and we want to know why," said a dealer at a leading broker in Euronext futures.

In London, the International Grains Council raised its forecast for world corn and wheat crops in the year ahead.

Harvest not yet in the bin

Red-hot demand from corn exporters, livestock feeders and processors had been expected to consume every bushel grown in 2010 and eat into reserves, but the higher stocks number was a sign that demand has been rationed.

US lawmakers are also weighing ending subsidies worth $US6 billion a year to ethanol makers, a move that could affect demand since about a third of the US corn crop goes to ethanol production.

The USDA said the corn stockpile was 3.67 billion bushels on June 1, and it pegged plantings at 92.28 million acres. With normal weather and yields, a record-large crop could be harvested.

But weather conditions have been far from normal, with flooding in key areas of the US Midwest. While USDA projections bode well for a record-large corn crop, an ample harvest is far from assured.

The USDA said it will resurvey farmers in four northern Plains states that normally produce a third of the US wheat crop.

A large per centage of those states had not yet planted crops as of early June, when the USDA conducted its acreage survey.

July wheat was down nine per cent at $US5.84-3/4 a bushel, posting its biggest per centage loss in more than two years in sympathy with the losses in corn. Wheat stocks were 4 per cent larger than traders expected and plantings were down marginally.

The USDA report was mildly supportive for soybeans, with plantings 2 per cent smaller than traders had expected. July soybeans were down two per cent at $US13.06-1/4.

The soybean crop would be the third-largest on record, but supplies are still expected to run tight.

Source: http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-5-Corn-prices-dive-on-US-acreage-stocks-sho-JBRNR?opendocument&src=rss