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Large U.S. Corn Stocks Report Shocks Traders

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U.S. corn and wheat stocks were much larger than expected at the end of the summer, providing a larger buffer against this year s reduced harvest and driving some grain prices to their lowest levels this year.

In a sign that near-record grain prices curbed demand far more than analysts had anticipated, inventories of corn fell to 1.13 billion bushels at the end of the crop year that closed Sept. 1, according to the Agriculture Department s quarterly stocks survey of farmers and warehouses.

While unusually small compared to the average carryover of 1.65 billion bushels, inventories were 162 million bushels higher than traders had estimated and far more robust than predictions early this year that stocks would shrink to their lowest level in 15 years.

Ethanol producers, feeders, exporters are very nervous, said Tim Hannagan, analyst at PFG Best. You don t want to be caught short on inventory going into next year.

Corn and wheat prices dived more than six per cent, putting corn on track for its worst month since 1996.

The wheat stockpile was six per cent larger than expected while soybeans were five per cent smaller, according to the report, which also downgraded the size of the U.S. wheat crop.

Traders expressed shock and even skepticism at the latest in a series of data surprises from the USDA, whose quarterly inventory figures and monthly forecasts have roiled markets time and again over the past year.

With the corn being that much, it is so high that it is almost to the point of not being believable, said Mark Schultz, analyst with Northstar Commodity Investments Co in Minneapolis.

Last Monday following the report, corn prices dived by their daily maximum 40 cents to trade below $6 a bushel for the first time this year on a continuous chart basis, falling into a technical bear market 26 per cent below their record high above $8 in June. Wheat slumped by its most in three months, and at $6.07 a bushel was down 10 per cent from a year ago.

It was yet another abrupt reversal for grain markets that led commodity gains through the latter half of 2010 and into this year but have faltered as demand showed signs of easing and bigger global crops began to replenish bins.

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