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Grain markets drop on USDA reports

Published on March 30, 2013 3:01AM

Last changed on April 27, 2013 8:29AM


Capital Press

The release of USDA's prospective plantings and grain stocks reports on Thursday drove corn futures down the limit to $6.95 per bushel and dragged wheat and soybean prices with them.

Markets responded to large planting intentions and stocks on hand that were considerably higher than the market expected, said Darrel Good, ag economist with the University of Illinois.

The reports are good news for livestock producers. New crop corn prices are now substantially lower than old crop prices, about $1.50 a bushel, he said.

May wheat futures trended 32.75 to 49 cents per bushel lower compared with Wednesday's prices at Portland, Ore. Wheat and soybean prices tend to track corn prices, because they are all used for livestock feed.

At 97.3 million acres, corn planting intentions are a little higher than last year's record-high planted acreage. That brings the prospect of a large corn crop. Unless bad weather shrinks the crop along the way, corn prices will continue to drift lower, he said.

Crop outlook and lower price expectations were the same last year until a severe drought took its toll on crops and corn prices soared. The cash corn price peaked in late August-early September at about $8.50 a bushel, and on Thursday it was about $7 a bushel.

Harvest bids for corn are now about $5.10 a bushel and could drop another $1 a bushel with a good growing season, he said.

The shock in the market was not so much the acreage intentions but the grain stocks, said Roy Huckabay, executive vice president of The Linn Group, a Chicago-based Futures Commission Merchant.

At 5.4 billion bushels, March 1 stocks came in about 350 million to 400 million bushels higher than expected, and soybeans, at 1 billion bushels, came in 50 million to 70 million bushels higher, he said.

That led to corn trading 60 cents a bushel lower, combining the 40 cents limit down and another 20 cents in "synthetics" -- options and puts, he said.

Don Roose, president of U.S. Commodities, a trading and risk management firm in West Des Moines, Iowa, pegs those unexpected differences at 370 million bushels for corn and 53 million bushels for soybeans. Soybean futures also saw a price decline, down 50 cents a bushel.

"Your buffer is a little bigger than the trade thought at the start of the day," he said.

That shows users are doing a decent job of rationing stocks. That's a plus for the livestock and ethanol industries, he said.

The stocks report took trading off its lofty numbers and made buyers more selective, less nervous about buying more before prices went higher, he said.

Corn prices will probably move down going into harvest, depending on weather. That puts markets on the same path they were on last year when things were going fine until the drought hit, and it could easily happen again, he said.

"Supply is just tight enough and demand is just high enough. We need a good crop. We have the ability to do that, but it's up to Mother Nature," he said.


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