Corn price plunges, amid anger over 'flawed' data 22:19 UK, 1st October 2010, by Agrimoney.com
The resolve in crop markets against shock US corn inventory data, widely cricised as erroneous, gave way in Chicago, sending prices sharply lower. Corn closed down at the daily limit allowed by exchange rules.
Grain prices, which in Asian and European trading hours had sustained limited losses, fell steeply for a second day under the weight of a US Department of Agriculture estimate that America's corn stocks were 1.71bn bushels a month ago ? 300m bushels above market forecasts.
The data have prompted widespread disbelief, and considerable anger among investors caught out by a figure deemed to have been artificially swollen by inclusion of this year's corn production.
While the stocks estimate is supposed to count only corn left over from previous seasons, the early and quick start to this year's harvest has raised questions that it has been inflated by new crop supplies.
'Mistakes all the time'
"The USDA ? they make mistakes all the time," said Fred Folkerts at US Commodities, who professed to having had a long position.
"This is serious," he added, turning a market which had been looking at a corn price of $5.50 a bushel to one where Chicago's December contract closed down the full 30 cents a bushel allowed by the exchange, or 6.1%, at $4.65 ? a bushel.
Wheat, whose fortunes are linked to corn by common use for purposes such as livestock feed, finished 2.8% lower at $6.55 a bushel for December delivery, with European lots pulled lower too.
Paris's November wheat contract closed down 2.3% at the lowest for a spot lot for nigh on two months. The USDA has stood by its data, assuring the markets that it includes only old crop supplies.
'Potential for discrepancy'
Nonetheless, concerns over the statistics have stretched across the Atlantic, with Alex Bos at Macquarie in London saying: "We think that there must be some new crop corn supplies included in the? stocks estimate."
The bank was "still bullish on corn due to our interpretation of the report," he added, forecasting a yield of 159.7 bushels per acre, lower than the USDA's 162.5-bushels-per-acre estimate, and "very strong demand going forward".
Across town, Rabobank analysts said that puzzlingly high figure had left "many questioning the consistency of USDA stocks reporting".
While respondents to the USDA survey are supposed only to include old crop inventories, "there is little or no regulation/supervision of reporting, meaning the potential for discrepancy is quite high", the bank said.
With the previous quarterly report, in June, also surprising traders, in coming up with a stocks figure well below expectations, "the lack of consistency in the USDA's stocks report is a concern".
Feed slump?
If the latest figure were correct, it would imply some difficult conclusions, such as a steep drop in feed use, given that consumption by ethanol plants is known to have increased over the summer, with exports steady, the banks added.
"Livestock margins were in the black for most, if not the entire, quarter, and we therefore find it difficult to understand how the USDA can justify a decline in feed use," Rabobank said.
According to Macquarie, the disputed stocks estimate implies a 25% slump in feed use, year on year, to the lowest figure since at least the 1980s.
The bank said it anticipated the next crop inventories report, due in January, to show "higher-than-normal" feed and residual usage of corn "in order to reverse the September overestimated stock level".
