by Agrimoney.com
Corn prices spiked lower, dragging on soybean and wheat futures too, after US farm officials, in a reassessment of harvest prospects, made only a token cut to their production estimates despite the dismal sowing conditions.
US Department of Agriculture officials acknowledged the setbacks to growers from persistent rains which have left farmers behind on planting corn, despite them managing a record week for sowing progress during a window of dryness in mid-May.
"Despite rapid planting progress during mid-May across the Corn Belt, rains and cool temperatures since have delayed the completion of planting in parts of the western Corn Belt," the USDA said in its much-watched monthly Wasde report on world crop supply and demand.
The delays have "raised the likelihood that seasonally warmer temperatures and drier conditions in late July will adversely affect pollination and kernel set in a larger share of this year's crop".
Pollination is a heat-sensitive period of development for US corn crops – one reason that farmers prefer to sow early, to cut the chances of crop reaching this stage during high summer temperatures.
Smaller-than-expected downgrade
However, the USDA made only a small cut to its forecast for the US corn yield this year, by 1.5 bushels per acre to 156.5 bushels per acre, a lower downgrade than many analysts had expected.
And it made no downgrade at all to the estimate for US corn area, defying market expectations that 2m-3m acres will be either abandoned, and claimed on prevent plant insurance, or switched to later seeded crop such as soybeans.
The overall impact was to cut the harvest estimate by 135m bushels to 14.0bn bushels, well above the 13.8bn-bushel figure that investors had expected, according to a survey.
Thanks to downgrades to consumption estimates, the impact on the forecast for end-2013-14 US corn stocks was even less, a downgrade of 55m bushels to 1.949bn bushels, well above the market consensus of a 1.83bn-bushel figure.
Market reaction
The stocks figure is particularly closely watched by investors as a guide to the availability of supplies, and thus the urgency for buyers to pay up for coverage.
With supplies higher than forecast, the impact was to send Chicago's new crop December corn futures contract tumbling more than 3% immediately after the data were released, to $5.32 ¼ a bushel.
The contract recovered a little ground to stand at $5.38 a bushel at 11:45 local time (17:45 UK time), a drop of 2.3%.
Old crop July futures also lost ground, down 1.1% at $6.52 a bushel, depressed by a small upgrade to the estimate for US Inventories at the end of 2012-13, thanks to a further cut to hopes for exports to 700m bushels.
Mixed signals
Soybeans emerged from the Wasde with fundamentals little altered, as investors had expected, while changes to wheat estimates held support for both bulls and bears.
The USDA surprised investors by upgrading its estimate for this year's US wheat harvest by 23m bushels to 2.08bn bushels, rather than making a small downgrade to account for perceived weather setbacks to crops.
In fact, "higher yields boost forecast production of hard red winter wheat in the Southern and Central Plains and soft red winter wheat across the South and Midwest," the USDA said, with the harvest now in its early stages.
However, farm officials lifted by 50m bushels their estimate for exports, leaving the end-2013-14 stocks figure at 659m bushels, close to where investors had expected it.
And they hacked 5.2m tonnes from their estimate for the world wheat harvest, leaving it 695.9m tonnes – only just above the consumption forecast, meaning little increase in, albeit comfortable, world inventories next season.
'Persistent dry weather'
The world wheat downgrade reflected downgrades to crops in the European Union, Russia and Ukraine, contrasting with some more upbeat comments from within these areas themselves.
Germany's farm co-operatives' association, for instance, on Wednesday lifted its estimate for the domestic wheat harvest, with Ireland and the UK being seen by many commentators as alone in possessing poor output prospects.
"European Union production is lowered 1.3m tonnes with small reductions in a number of member countries," the USDA said.
For the former Soviet Union states, it said that "persistent dry weather in key growing areas of south eastern Ukraine and adjoining areas of southern Russia reduces production prospects 2.5m tonnes and 2.0m tonnes, respectively."
Price moves
Wheat prices extended declines after the data, but failed to match fellow grain corn in standing 1.9% lower at $6.83 ¾ a bushel.
Soybeans for November were 1.2% down at $13.11 ¼ a bushel with the old-crop July lot up 0.4% at $15.46 a bushel.
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