Futures prices for U.S. corn plummeted after federal forecasters reported larger-than-expected supplies and raised their outlook for the fall harvest.
Corn for July delivery dropped as much as 12% in morning trading on the Chicago Board of Trade. Corn for delivery for later in the year and 2012 fell 30 cents, the daily limit on one-day declines. The July contract wasn't subject to that limit since its nearing expiration.
Traders were surprised by two reports from the U.S. Department of Agriculture. One report estimated U.S. farmers planted 92.3 million acres of corn this spring, up 1.7% from an estimate issued just three weeks ago. The other report put the amount of corn in U.S. inventories as of June 1 at 3.67 billion bushels, down 15% from a year ago, but well above analysts' expectations.
Corn prices rallied to a record high in early June as traders fretted that precariously low supplies and ongoing strong demand could lead to scattered shortages by the end of the summer. Furthermore, the fall crop was seen as not able to replenish inventories after wet spring weather kept farmers from planting all the corn they could. Thursday's report undercut those twin worries, driving the selloff in futures.
"This is a definitely a shock to the system. We had two whammies with acreage and stocks," said Jerry Gidel, an analyst for North America Risk Management Services, a brokerage in Chicago.
Shares in farm-equipment makers recovered from an early slide in the wake of the report as the prospect of a lower-than-anticipated rise in farm income was outweighed by the prospect of more wear-and-tear on tractors from a larger harvest. Food processors gained on the prospect of easing price pressure on raw materials.
Deere & Co., the world's largest farm-equipment maker, recovered from an early decline and was up 0.5% at $82.87 a share in late morning trade. Fertilizer producers bore the brunt of the selling as the prospect of lower farm incomes may dent continuing efforts to push up soil-nutrient prices. Shares of CF Industries Inc. were off 4.5% to $42.18.
Corn plantings this year are estimated to be the second highest since 1944, behind only the 93.5 million acres planted in 2007, according to the USDA. Many analysts, however, expected the agency would mimic a lower estimate from June 9 that had pegged plantings at 90.7 million acres. The report Thursday was based on surveys of farmers, while the earlier report was based on agency projections.
The USDA also said it expects farmers to actually harvest 84.9 million acres, a 1.7-million-acre increase from the June 9 forecast.
Expectations for a smaller planting were driven by excessive rains and flooding in the eastern Corn Belt and northern Plains in April and May that kept farmers out of their fields. The agency said Thursday that planting was indeed delayed in early May through much of the Midwest, but the "planting conditions improved during May in most of the corn-producing areas of the country."
Traders "underestimated how the acres lost in the east could be made up by plantings in the west, and by plantings on the lawn," said John Kleist, senior analyst at ebottrading.com, an Illinois brokerage.
As for supplies, the USDA put corn inventories, whether stored on farms or in off-farm facilities, at 3.67 billion bushels as of June 1. That is a 15% decrease from the 4.3 billion bushels in stockpiles available a year ago, yet analysts were expecting a 23% decrease.
"Certainly we won't run out of corn," said Terry Reilly, a grains analyst with Citigroup in Chicago. "Ethanol users, feedlots and exporters shouldn't feel any considerable strain on supply."
Many analysts didn't expect demand would pull back this spring and leave more grain in storage. Livestock producers have been scrambling to find corn for feed, while ethanol producers are expected to consume a record 5.05 billion bushels of corn next year.
The reports left some analysts and traders to question the accuracy as projections didn't appear to match what they are seeing in the market.
"I think you probably raised many more questions than you answered today and you're probably going to raise a credibility issue with the USDA," said Jim Gerlach, president of A/C Trading, a commodities brokerage in Indiana.
The selloff in corn futures pressured the soybean and wheat markets. Wheat for September delivery was down 7.9% to $6.20 3/4 a bushel, while soybeans for August delivery fell 1.2% to $13.12 a bushel at the Chicago Board of Trade.
Corn for July delivery dropped as much as 12% in morning trading on the Chicago Board of Trade. Corn for delivery for later in the year and 2012 fell 30 cents, the daily limit on one-day declines. The July contract wasn't subject to that limit since its nearing expiration.
Traders were surprised by two reports from the U.S. Department of Agriculture. One report estimated U.S. farmers planted 92.3 million acres of corn this spring, up 1.7% from an estimate issued just three weeks ago. The other report put the amount of corn in U.S. inventories as of June 1 at 3.67 billion bushels, down 15% from a year ago, but well above analysts' expectations.
Corn prices rallied to a record high in early June as traders fretted that precariously low supplies and ongoing strong demand could lead to scattered shortages by the end of the summer. Furthermore, the fall crop was seen as not able to replenish inventories after wet spring weather kept farmers from planting all the corn they could. Thursday's report undercut those twin worries, driving the selloff in futures.
"This is a definitely a shock to the system. We had two whammies with acreage and stocks," said Jerry Gidel, an analyst for North America Risk Management Services, a brokerage in Chicago.
Shares in farm-equipment makers recovered from an early slide in the wake of the report as the prospect of a lower-than-anticipated rise in farm income was outweighed by the prospect of more wear-and-tear on tractors from a larger harvest. Food processors gained on the prospect of easing price pressure on raw materials.
Deere & Co., the world's largest farm-equipment maker, recovered from an early decline and was up 0.5% at $82.87 a share in late morning trade. Fertilizer producers bore the brunt of the selling as the prospect of lower farm incomes may dent continuing efforts to push up soil-nutrient prices. Shares of CF Industries Inc. were off 4.5% to $42.18.
Corn plantings this year are estimated to be the second highest since 1944, behind only the 93.5 million acres planted in 2007, according to the USDA. Many analysts, however, expected the agency would mimic a lower estimate from June 9 that had pegged plantings at 90.7 million acres. The report Thursday was based on surveys of farmers, while the earlier report was based on agency projections.
The USDA also said it expects farmers to actually harvest 84.9 million acres, a 1.7-million-acre increase from the June 9 forecast.
Expectations for a smaller planting were driven by excessive rains and flooding in the eastern Corn Belt and northern Plains in April and May that kept farmers out of their fields. The agency said Thursday that planting was indeed delayed in early May through much of the Midwest, but the "planting conditions improved during May in most of the corn-producing areas of the country."
Traders "underestimated how the acres lost in the east could be made up by plantings in the west, and by plantings on the lawn," said John Kleist, senior analyst at ebottrading.com, an Illinois brokerage.
"Certainly we won't run out of corn," said Terry Reilly, a grains analyst with Citigroup in Chicago. "Ethanol users, feedlots and exporters shouldn't feel any considerable strain on supply."
Many analysts didn't expect demand would pull back this spring and leave more grain in storage. Livestock producers have been scrambling to find corn for feed, while ethanol producers are expected to consume a record 5.05 billion bushels of corn next year.
The reports left some analysts and traders to question the accuracy as projections didn't appear to match what they are seeing in the market.
"I think you probably raised many more questions than you answered today and you're probably going to raise a credibility issue with the USDA," said Jim Gerlach, president of A/C Trading, a commodities brokerage in Indiana.
The selloff in corn futures pressured the soybean and wheat markets. Wheat for September delivery was down 7.9% to $6.20 3/4 a bushel, while soybeans for August delivery fell 1.2% to $13.12 a bushel at the Chicago Board of Trade.
