Bloomberg News

Grains Tumble as Higher U.S. Stockpiles May Signal Demand Slump

September 30, 2011

Sept. 30 (Bloomberg) -- Corn posted its biggest monthly drop in five decades, and wheat and soybeans tumbled, after a government tally of U.S. inventories signaled demand may be slowing for crops used in food, animal feed and fuel.

Supplies of corn totaled 1.128 billion bushels as of Sept. 1, the U.S. Department of Agriculture said today in a report, 20 percent more than the average prediction of 24 analysts in a Bloomberg survey. Wheat inventories were pegged at 2.15 billion bushels, topping analysts’ estimates of 2.071 billion.

Corn consumption is dropping after prices rallied to a three-year high in June. Use of the grain fell 2.3 percent in the three months ended Aug. 31 from a year earlier, the USDA said today. Futures also have tumbled as high U.S. unemployment and the worsening European debt crisis raised concerns that demand for commodities would slow, while a stronger dollar eroded the appeal of U.S. supplies for overseas buyers.

“We’ve seen some reductions in demand,” Dan Kuechenmeister, the manager of the commodities department at RBC Wealth Management, said by telephone from Minneapolis. After the USDA’s report, traders “have taken these markets behind the woodshed and taken the old belt strap to them.”

Corn futures for December delivery tumbled the 40-cent exchange limit, or 6.3 percent, to settle at $5.925 a bushel at 1:15 p.m. on the Chicago Board of Trade, the lowest for a most- active contract since July 1. The price was down 23 percent for September, the biggest monthly decline in records going back to 1959. The exchange limit will expand to 60 cents on Oct. 3.

Wheat Futures Plunge

Wheat futures for December delivery plunged 45 cents, or 6.9 percent, to $6.0925 a bushel on Chicago. Earlier, the price touched $6.05, the lowest for a most-active contract since July 1. The commodity lost 23 percent in September, the biggest monthly drop since March 1974.

Soybean futures for November delivery tumbled 51 cents, or 4.1 percent, to $11.79 a bushel on the CBOT. Earlier, the price touched $11.75, the lowest for a most-active contract since Oct. 12. The oilseed plunged 19 percent in September, the biggest monthly drop since September 2008.

In today’s report, the USDA said domestic soybean stockpiles totaled 215 million bushels on Sept. 1. That was above 151 million bushels from a year earlier, while below analysts’ expectations of 224 million. Still, greater supplies of corn and wheat may erode demand for the oilseed, which competes for acreage with corn and is used in livestock feed.

“Corn is going to trump everything,” said Jason Britt, the president of brokerage Central States Commodities Inc. in Kansas City, Missouri.

‘Far Less’ Demand

Bigger-than-expected corn and wheat supplies suggest “far less grain was fed” to livestock than the government estimated, Hussein Allidina, Morgan Stanley’s head of commodity’s research, wrote in a report. Smaller producers may be reducing herds by more than the USDA estimates, or analysts are “inadequately accounting for all the feed components currently in use in the U.S.,” he wrote.

The USDA said on Sept. 12 that 240 million tons of wheat would go to feed and residual use this year, 80 percent more than a year earlier, while feed usage in corn would drop 6 percent from a year earlier to 4.7 billion bushels. The agency will update its supply and demand data on Oct. 12.

Rabobank, Goldman Analysis

Higher U.S. grain supplies mean “there will be less need to ration demand in the new season,” Rabobank analysts Luke Chandler, Keith Flury, Erin FitzPatrick and Nick Higgins wrote in a report today. The bank said it is bearish on all three crops. The USDA’s report dealt a “substantial blow” to prices, they said.

Goldman Sachs Group Inc. maintained its $7 price forecast for corn in the current marketing year, saying in a note that the “probability for an extreme bull case” in prices is diminished after today’s USDA report.

The U.S. is the world’s leading producer and exporter of corn and soybeans. The nation is also the top shipper of wheat.

Corn is the biggest U.S. crop, valued at $66.7 billion in 2010, followed by soybeans at $38.9 billion, government figures show. Wheat is the fourth-largest, behind hay, at $13 billion.

--Editors: Daniel Enoch, Steve Stroth.

To contact the reporters on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net; Jeff Wilson in Chicago at jwilson29@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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