Surprise US crop upgrades send grain prices tumbling anew

10.11.2016

Corn and soybean futures lurched lower, dragging wheat lower too, after the US lifted its forecasts for domestic harvests of both crops to record highs above investors' expectations, cautioning over soy crushing prospects too.

Grain futures, which had largely recovered from losses incurred after Donald Trump's victory in US presidential elections, fell back solidly into negative territory on surprise at the extent of the upgrades by the US Department of Agriculture to its hopes for domestic crops.

For corn, the USDA raised its estimate for the domestic yield by 1.9 bushels per acre to 175.3 bushels per acre, rather than trimming it, as investors had expected.

The upgrade fed through into a harvest upgrade of 168m bushels to 15.226bn bushels.

And while increased expectations for industrial use of corn, including for making ethanol, swallowed up part of the extra supplies, the USDA, in its flagship Wasde crop report, nonetheless lifted by 83m bushels to 2.403bn bushels its estimate for domestic corn stocks at the close of 2016-17.

Investors had expected the stocks forecast – viewed as a key price signal, in indicating the availability of supplies – to be cut to 2.30bn bushels.

'Production gains'

For soybeans, the USDA lifted its estimate for the US harvest this year, tallying with extensive reports of bumper crops.

Wasde soy estimates, 2016-17, difference from previous and (from market expectation)

US yield: 52.5 bushels per acre, +1.1 bpa, (+0.5 bpa)

US production: 4.361bn bushels, +92m bushels, (+47m bushels)

US carryout stocks: 480m bushels, +85m bushels, (+60m bushels)

World carryout stocks: 81.53m tonnes, +4.17m tonnes, (+4.55m tonnes)

Sources: USDA, Reuters, Agrimoney.com
However, the upgrade, which the USDA said was "mainly on production gains for Minnesota, North Dakota, and Kansas", exceeded investor expectations by a margin.

And while the USDA did lift its estimate for US soybean exports in 2016-17, as many investors had predicted, demand hopes were undermined by a downgrade to the forecast for processing of the oilseed in the US itself.

"Despite increased supplies, soybean crush is reduced 20m bushels to 1.93bn bushels mostly due to reduced soymeal export prospects," the USDA said.

"Sales are lagging year-earlier levels to several markets including Mexico, Canada, Thailand, and the European Union."

Futures tumble

The revisions left the USDA forecasting US soybean stocks at the close of 2016-17 of 480m bushels, well ahead of market expectations of a 420m-bushel number.

Wasde corn estimates, 2016-17, difference from previous and (from market expectation)

US yield: 175.3 bushels per acre, +1.9 bpa, (+1.1 bpa)

US production: 15.226bn bushels, +169m bushels, (+185m bushels)

US carryout stocks: 2.403bn bushels, +83m bushels, (+103m bushels)

World carryout stocks: 218.19m tonnes, +1.38m tonnes, (+1.25m tonnes)

Sources: USDA, Reuters, Agrimoney.com

And as an extra setback, the USDA lifted its forecast for soybean inventories in Argentina and China too, leaving the world stocks estimate at 81.53m tonnes, more than 4.5m tonnes above investors' consensus forecast.

The immediate market reaction was to wipe some $0.26 a bushel from soybean futures for January, sending them to a low of $9.88 ј a bushel, down 2.2% on the day.

Corn futures for December plunged 3.5% to $3.42 a bushel.

Wheat dragged lower

Wheat futures, meanwhile, dropped 2.8% to a session low of $4.03 ѕ a bushel, dragged lower by corn, with which wheat is competing particularly hard on price this year to win a place in feed rations, after a large but low-quality harvest.

The Wasde itself appeared more modestly downbeat for wheat price prospects, showing world stocks at the close of 2016-17 at 249.23m tonnes, an upgrade of some 800,000 tonnes as opposed to the 500,000-tonne downgrade the market expected.


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