crop prices soar us slashes corn yield hopes

Corn futures up 6%, soybean 6.57%, wheat 9.1%
The USDA was wrong after all...

http://www.agrimoney.com/news/crop-prices-soar-after-us-slashes-corn-yield-hopes--2334.html

Crop prices soar after US slashes corn yield hopes

Crop futures soared after the US made surprise cuts to estimates for its corn and soybean yields, and tightened its forecast for wheat supplies by more than investors had expected.

"The report was bullish across the board," broker US Commodities said.

Prices of all three of Chicago's major crops jumped in opening deals to the maximum that exchange limits allowed, and closed there.

For corn, this meant a rise of 6.0%, for soybeans an increase of 6.6% and for wheat a 9.1% climb, although the grain eased marginally in later trading.

European wheat lots rallied too, with Paris's November lot adding nearly 8% at one point, and London's November contract gaining more than 6%.

Huge downgrade

The increases reflected in part a cut by the US Department of Agriculture, in a flagship report, of 0.3 bushels per acre to 44.4 bushels per acre in its estimate for America's soybean yields. Traders had expected an increase.

Friday's closing crop prices

Chicago corn: $5.28 ? a bushel, +6.0%

Chicago wheat: $7.19 ? a bushel, +9.1%

Kansas wheat: $7.58 ? a bushel, +8.4%

London wheat: ?167.00 a tonne, +6.2%

Paris wheat: E223.75 a tonne, +7.6%

November contracts for London and Paris. December lots for other exchanges
The USDA also lowered its forecast for American and global wheat inventories by more than the market had bargained on.

However, the main surprise was a cut of 6.7 bushels per acre to 155.8 bushels per acre in the forecast for this year's American corn crop, a reduction three times as large as analysts had expected.

The downgrade placed supplies in the world's biggest producer of the grain on course to fall to 902m bushels in 2010-11. US inventories rarely fall below 1bn bushels.

And factoring in growing demand for grain, the squeeze on supplies appears even tighter. The so-called "stocks-to-use" ratio ? a measure of availability and therefore in turn an indication of prices ? is on track to fall below 7% for the first time since 1995-95.

Illinois suffers

The USDA gave few clues to the reasons behind its crop downgrade, merely saying that "forecasted yields decreased from last month throughout much of the Corn Belt", and in particular in Illinois.

However, the revision follows considerable speculation of a cut, following disappointing harvest results ? the surprise being the extent of the revision.

"Trade has discussed implications of a yield this low but was expecting the USDA to take baby step to reach this point, which was even lower than some of the trade's wildest dreams," Benson Quinn Commodities said.

Thoughts of a radical reduction in the yield estimate were boosted when the USDA signalled that it had taken samples some 85% of its test corn plots, a sign for many traders that the department would be comfortable with the accuracy of its figures.

'Rationing numbers'

The limit-up rises in Chicago prices left corn for December at $5.28 ? a bushel, narrowly below last month's two-year high.

And there was plenty of scope for further prices next week, US Commodities said.

"These are now rationing [inventory] numbers on corn," the broker said. "We will now see if $5.50 a bushel or $6.00 a bushel basis is the rationing numbers."

Rabobank said that the rise in prices prompted by the "wildly bullish" report was likely to "drag the complex higher.. through the coming weeks".