Corn Plummets On USDA Report

Corn traders, especially of a bullish persuasion, are being carted off trading floors feet first after a report by the USDA crushed expectations that there is a supply shortage. Reuters reports: "Corn futures plummeted more than 10 percent in early trading on Thursday after a U.S. government report said farmers were able to seed far more corn acres this spring than many analysts expected and that supplies are not as tight as many thought." And while the front month dropped by the maximum allowed limit, that did not stop the July contract, which has entered the delivery period and is trading without limits, to plunge by a whopping 70 cents. "The declines leave corn with the biggest monthly fall since June 2009." This is one time when those listening to Goldman would have been a well-advised action. From Damien Courvalin's note released yesterday: "We expect corn and cotton acreage will be higher than projected by the June WASDE, to the detriment of soybeans."

The carnage charted:

From Reuters:

Despite excessively wet conditions, a scramble to get corn seeded in key growing areas that was fueled by high prices has set the stage for a potentially record-large corn crop, and conversely a smaller soybean crop, according to the report issued Thursday by the U.S. Department of Agriculture.

"There are some big surprises in this report," said Karl Setzer, commodity Trading Advisor for MaxYield Cooperative in West Bend, Iowa. "All in all, what this shows us in the quarterly stocks report, we are not using grain at the pace we thought we were."

USDA said farmers planted 92.282 million acres with corn this spring, above an average trade estimate for 90.767 million acres and well above the USDA's June 10 forecast of 90.700 million acres.

The department estimated quarterly corn stocks as of June 1 at 3.670 billion bushels, above an average trade estimate for 3.302 billion and compared with 4.310 billion a year ago.

Traders said the fact that farmers were able to get so much corn in the ground despite flooding and heavy rainfall through the U.S. Midwest underscored how recent high prices pushed farmers to plant corn over soybeans despite the adverse conditions.

"Getting this much acreage planted is a surprise," said Shawn McCambridge, an analyst with Prudential Bache Commodities.

That said, this move is likely a buying opportunity. Back to the mentioned Goldman report:

Adverse weather has significantly hindered US planting this spring

Adverse weather conditions impaired US crop planting this spring and we expect corn acreage to be lower than March intentions although higher than projected in the June WASDE given the strong returns offered by new crop prices. We also expect cotton acreage to be higher than intentions and believe that higher corn and cotton acreage will result in lower soybean acreage; we note that the USDA has shown a bias in overestimating soybean acreage by 0.3 million acres on average in its June estimate. Tomorrow’s acreage estimates will likely be revised in August as the USDA conducted its June survey with some planting still to occur and the impact of the Missouri River flooding still unknown. Finally, although weather from July to September is essential to determining production, we believe that this spring’s delayed planting, poor weather and flooding will also limit production potential as it translates into higher abandonment and lower yields. See Hit to acreage, abandonment, yield lowers US production outlook, June 13, 2011, and the updated table below for our expectations.

Uncertainty on feed demand and grain stocks remains high

Grain stocks have often generated large surprises and markets will be very sensitive this year given critically low inventory. Consensus expects lower stocks vs. last year for corn and wheat and higher for soybeans. We believe that low corn stocks would require sharply higher prices as the recent selloff likely boosted demand for feed, exports and ethanol production.



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