Bloomberg News

Grains, Soybeans Plunge as USDA Forecasts Bigger U.S. Supplies

January 12, 2012

Jan. 12 (Bloomberg) -- Corn and wheat prices plunged the most in three months, while soybeans slid, after an increase in stockpile forecasts by the U.S. government eased concern that shortages will inflate prices for food and biofuels.

Inventories of corn in the U.S., the world’s top grower and exporter, may total 846 million bushels before this year’s harvest, 12 percent more than analysts expected, a U.S. Department of Agriculture report showed today. The 2011 crop totaled 12.358 billion, above a December forecast, while global output will be a record for a fifth straight year. World wheat reserves will rise to the highest since 2000, the USDA said.

The prospect of ample supplies of grain for livestock feed boosted shares of Tyson Foods Inc., the largest U.S. meat producer, and Smithfield Foods Inc., the top pork processor. World food prices fell in December for the fifth time in six months and are down 11 percent from a record in February, the United Nations Food and Agriculture Organization said today.

“High prices curbed demand, and now the market will decline until we find improved consumption,” Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said in a telephone interview.

Corn futures for March delivery tumbled the 40-cent limit, or 6.1 percent, to settle at $6.115 a bushel at 1:15 p.m. on the Chicago Board of Trade. That’s the biggest drop since Sept. 30. Soybean futures for March delivery fell 1.7 percent to $11.825 a bushel on the CBOT, after touching $11.50, the lowest since Dec. 21.

South America

Before today, corn futures were up 13 percent since mid- December and soybeans had rallied 7.3 percent as dry weather in South America threatened to reduce global grain supplies.

The USDA cut its estimate for Argentina’s corn production to 26 metric million tons, 10 percent less than last month’s forecast, and said soybean output may total 50.5 million tons, 2.9 percent below the December projection. Still, world corn inventories forecast at 128.14 million tons were 3.9 percent higher than analysts forecast, and estimated soybean stockpiles also were larger than expected.

“World grain and soybeans supplies are more comfortable, and provide a buffer against any additional losses from dry weather in South America,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said today in a telephone interview. “Farmers have been one of the few industries to prosper during the past several years of global slowdown, and they have responded by growing bigger crops.”

Demand Slowing

U.S. corn demand in the three months through November was 3.84 billion bushels, down from 4.1 billion in the year-earlier quarter, USDA data show. Soybean consumption fell to 905 million bushels, 25 percent less than a year earlier. U.S. soybean stockpiles before the 2012 harvest may reach 275 million bushels, 20 percent more than forecast last month, as exports slowed, the agency said.

Larger grain inventories may cut costs for oilseed processors including Bunge Ltd., which rose as much as 1.6 percent in New York trading. Ethanol producers including Archer Daniels Midland Co. also may see reduced expenses. Last year, 40 percent of the U.S. corn crop was used to make fuel, topping the amount used in animal feed for the first time.

Food Costs

An index of 55 food items fell to 211 points last month from a revised 216.1 points in November, led by grains, sugar and oilseeds, the Rome-based FAO said today on its website.

Food costs probably will fall in 2012, Jose Graziano da Silva, who took on the job of director general at the FAO this month, said on Jan. 3. The USDA on Dec. 23 cut its estimate for domestic food prices in 2011 to 3.25 percent to 3.75 percent and said the rate of increase may slow next year.

Wheat futures for March delivery slid 5.6 percent to close at $6.05 a bushel on the CBOT, the biggest decline since Sept. 30. Before today, prices were down 16 percent in the past year.

Global wheat supplies may total 210.02 million tons, the most since 2000, as countries from Australia to Russia raised output, the USDA said.

“There is plenty of supply right now, especially wheat on a global basis,” said Alex Bos, a grain strategist at Macquarie Group Ltd. in New York.

Planting Gain

In the U.S., farmers planted 41.947 million acres of winter wheat from September to November, more than analysts expected and 3.2 percent higher than last year, the USDA said. Areas of Kansas, Oklahoma and Texas have had triple the normal amount of rain in the past 30 days, easing drought in the region, National Weather Service data show.

Crop “conditions are probably getting better every day,” Darrell Holaday, the president of Advanced Market Concepts in Wamego, Kansas, said in a telephone interview. “I don’t think there’s anything on the world wheat market to be bullish about.”

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

--Editors: Steve Stroth, Patrick McKiernan

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

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


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