CHICAGO—Grain prices have plummeted as worries about shrinking food supplies have dissipated, due to better weather and an unexpectedly large increase in U.S. corn inventories.
Corn came under the most pressure last week, as futures for December delivery on Friday fell by the maximum allowed by the exchange, 30 cents, or 6.1%, to $4.6575. This brought the week's losses to almost 11%. Wheat plunged 9% for the week, and soybeans slipped about 6%.
The catalyst was fresh U.S. data showing corn stockpiles at 1.7 billion bushels as of Sept. 1, significantly more than analysts' expectations and even the U.S. Department of Agriculture's own previous forecast.
The report was a splash of cold water on a market that many said had become overheated as it climbed to its highest levels in nearly two years. Corn's gains have been driven, in part, by disappointing yields in some areas and the prospect that a weak crop would make supplies dangerously tight. Speculative investors, taking note of corn's strong recent returns and bullish fundamentals, poured money into the market on the rally but are now looking to exit.
"We had the whole third quarter just crank out great returns," said Mike Zuzolo, president of Global Commodity Analytics & Consulting, a brokerage firm. "It would strike me as absolutely normal and prudent, in fact, to go ahead and take some profit away from the markets."
The report damps speculation, at least for now, that corn supplies by September 2011 could shrink below the psychologically significant threshold of one billion bushels. It also undercut arguments that prices would have to rally to $5.50 or even $6 to chase buyers away and stave off a supply crisis.
Adding to the pressure is the continuing harvest, which typically weighs on prices during the fall as farmers send more supplies into the pipeline. Ultimate consumers of corn, such as food processors and livestock producers, bought into the dips in the corn market in recent weeks and are content to wait and see how far prices retreat, traders say.
Wheat demand also has slowed recently as fears about tightening global supplies have eased. Wheat prices are down 22% from nearly two-year highs reached when Russia, a major producer, spooked buyers by announcing in early August that it was halting grain exports due to a historic drought.
"In corn and wheat, we have seen some setback in demand," Mr. Zuzolo said. "We have seen some rationing."
Recent rain in Russia has encouraged farmers there to plant wheat that will be harvested in the spring, calming nerves of wheat importers. Buyers have higher hopes for Russia's next crop than they did a month ago, when the Black Sea region was hurting badly from the drought.
The USDA will give market participants an update on the global grain supply and demand situation on Friday. Grain traders expect they have already seen the worst in terms of downgrades to world wheat output but could still see a decline in the USDA's domestic corn-output estimate.
The corn crop has suffered because of excessive wetness early in the summer and hot, dry weather in August. Some analysts think U.S. yields could be down as much as 5% from last year. If that happens, supplies could still be uncomfortably tight in 2011.
"Do I still believe the long-term story is there?" said Arlan Suderman, an analyst for Farm Futures, an agricultural trade publication. "Yes. But I think it's going to take a while to regain traction."
Write to Ian Berry at ian.berry@dowjones.com and Tom Polansek at tom.polansek@dowjones.com
Corn came under the most pressure last week, as futures for December delivery on Friday fell by the maximum allowed by the exchange, 30 cents, or 6.1%, to $4.6575. This brought the week's losses to almost 11%. Wheat plunged 9% for the week, and soybeans slipped about 6%.
The catalyst was fresh U.S. data showing corn stockpiles at 1.7 billion bushels as of Sept. 1, significantly more than analysts' expectations and even the U.S. Department of Agriculture's own previous forecast.
The report was a splash of cold water on a market that many said had become overheated as it climbed to its highest levels in nearly two years. Corn's gains have been driven, in part, by disappointing yields in some areas and the prospect that a weak crop would make supplies dangerously tight. Speculative investors, taking note of corn's strong recent returns and bullish fundamentals, poured money into the market on the rally but are now looking to exit.
"We had the whole third quarter just crank out great returns," said Mike Zuzolo, president of Global Commodity Analytics & Consulting, a brokerage firm. "It would strike me as absolutely normal and prudent, in fact, to go ahead and take some profit away from the markets."
The report damps speculation, at least for now, that corn supplies by September 2011 could shrink below the psychologically significant threshold of one billion bushels. It also undercut arguments that prices would have to rally to $5.50 or even $6 to chase buyers away and stave off a supply crisis.
Adding to the pressure is the continuing harvest, which typically weighs on prices during the fall as farmers send more supplies into the pipeline. Ultimate consumers of corn, such as food processors and livestock producers, bought into the dips in the corn market in recent weeks and are content to wait and see how far prices retreat, traders say.
Wheat demand also has slowed recently as fears about tightening global supplies have eased. Wheat prices are down 22% from nearly two-year highs reached when Russia, a major producer, spooked buyers by announcing in early August that it was halting grain exports due to a historic drought.
"In corn and wheat, we have seen some setback in demand," Mr. Zuzolo said. "We have seen some rationing."
Recent rain in Russia has encouraged farmers there to plant wheat that will be harvested in the spring, calming nerves of wheat importers. Buyers have higher hopes for Russia's next crop than they did a month ago, when the Black Sea region was hurting badly from the drought.
The USDA will give market participants an update on the global grain supply and demand situation on Friday. Grain traders expect they have already seen the worst in terms of downgrades to world wheat output but could still see a decline in the USDA's domestic corn-output estimate.
The corn crop has suffered because of excessive wetness early in the summer and hot, dry weather in August. Some analysts think U.S. yields could be down as much as 5% from last year. If that happens, supplies could still be uncomfortably tight in 2011.
"Do I still believe the long-term story is there?" said Arlan Suderman, an analyst for Farm Futures, an agricultural trade publication. "Yes. But I think it's going to take a while to regain traction."
Write to Ian Berry at ian.berry@dowjones.com and Tom Polansek at tom.polansek@dowjones.com
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