U.S. grain and soy review: Corn at record highs on supply outlook

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U.S. corn futures soared Thursday to record highs as federal forecasters lowered supply outlooks to levels not seen since the mid-1990s.

Prices leaped to new highs after the U.S. Department of Agriculture, in a monthly crop report, cut by 22% its domestic inventory estimate for the coming year to 695 million bushels. Traders hadn't expected the sharp reduction in the previous May forecast as supplies for the current year had already been estimated at a 15-year low.

The USDA report caused futures prices to surge to an all-time record of $7.93 a bushel, topping the previous high of $7.83 3/4 set in April. The July contract, which is the most actively traded, settled up 21 1/2 cents, or 2.8%, at $7.85 1/2 a bushel at the Chicago Board of Trade.

Persistent rains and flooding in the eastern Corn Belt and northern Plains reduced corn plantings, according to the USDA. Acres were submerged along the Ohio, Missouri and Mississippi rivers.

Farmers are thought to have planted just 90.7 million acres, a drop from the 92.2 million acres federal forecasters were expecting a month ago.

The agency also indicated that foreign countries won't be able to offer much relief to grain users. The agency lowered its estimate for global corn supplies for the coming year by 13% to a five-year low of 111.9 million tons.

The tighter supply forecast raised anxiety levels of market participants, encouraging traders to add risk premium, as the smaller inventories eliminate any supply cushion to absorb any additional crop issues in 2011, said Rich Nelson, director of research at Allendale Inc., a brokerage and advisory firm.

The combination of tight supplies and the fact that the 2011 U.S. corn is not off to an optimal start raises fears among grain users about where they will source corn before the new crop harvest starts in the fall.

The uncertainty of 2011 production with supplies already stretched thin present a logical argument for higher prices, said Dale Durchholz, analyst with AgiVisor, an agricultural advisory firm in Bloomington, Ill.

End users, such as ethanol plants and processors, are increasingly paying higher prices for corn, as buyers are forced to raise purchase prices to encourage selling, Durchholz added.

Speculative funds were estimated buyers of 15,000 corn contracts, a large number for daily trading, traders said.

Meanwhile, wheat and soybean futures traded lower as supplies are considered large enough to go around. The USDA crop reports for wheat and soybeans lacked any bullish surprises, enticing traders to take profits with ample supplies and slower export demand limiting buyer interest.

CBOT July wheat slipped 3 cents to $7.45/bushel while KCBT July dropped 13 3/4 cents to $8.71 1/4 and MGE July fell 3/4 cent to $10.20 3/4. CBOT July soybeans end down 0.6% at $13.93 3/4 a bushel.

Other Markets

CBOT July soymeal ended up 0.03% at $372.90/short ton, and July soyoil settled down 0.9% at 57.40 cents/pound.

U.S. rice futures rose as USDA cut its view on ending stocks due to planting disruptions from flooding. CBOT July rice jumped 16 1/2 cents to $14.94 per hundredweight.

Ethanol futures rallied Thursday, supported by soaring corn prices and strong demand. Ethanol for July delivery gained 2.8%, to $2.758 per gallon. Oat futures rose, with ongoing concerns about production due to planting issues in the U.S. northern plains and Canada adding support. The July contract jumped 12 cents, or 3.1%, to $3.95 a bushel.


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