Corn, Soy, Wheat Prices Surge as U.S. Cuts Supply Outlook

Grain and oilseed prices rose the most allowed by the Chicago Board of Trade after the U.S. government said domestic and world supplies of corn, soybeans and wheat will be smaller than forecast last month.

The U.S. Department of Agriculture cut its domestic corn- crop estimate for the second time in as many months, predicting a 3.4 percent drop from last year. While farmers will collect the most soybeans ever, the total will be 2.2 percent less than forecast in September, the USDA said. Global wheat inventories will be 1.8 percent less than projected last month.

Before today, corn prices surged 33 percent since the end of June as unfavorable weather dimmed prospects for crops in the U.S., the world’s largest grower and exporter. Soybeans were up 18 percent over the same period, and wheat had gained 42 percent the past year after drought ruined fields in Russia and too much rain diminished supplies from Canada.

“Although the trade had increasingly braced for a downward revision in corn yields, the USDA provided a far larger-than- expected shock,” Lewis Hagedorn, a commodity analyst for JPMorgan Chase & Co., said in a report. “Meaningfully higher prices are now required in order to ration demand,” specifically for corn used to make ethanol, Hagedorn said.

ADM, Tyson

Reduced supplies of corn will increase expenses for meat companies and squeeze margins for makers of corn-based ethanol such as Valero Energy Corp., Poet LLC and Archer Daniels Midland Co.

Tyson Foods Inc., the largest chicken processor, dropped $1.03, or 6.3 percent, to $15.24 a share at 10:59 a.m. in New York, and Smithfield Foods Inc., the biggest pork producer, fell 85 cents, or 5.3 percent to $15.20.

Corn futures for December delivery rose the 30-cent trading limit, or 6 percent, to $5.2825 a bushel on the Chicago Board of Trade. The price reached a two-year high of $5.2875 on Sept. 27.

Soybean futures for November delivery soared the 70-cent trading limit, or 6.6 percent, to $11.35 a bushel in Chicago.

Wheat futures for December delivery jumped the 60-cent maximum, 9.1 percent, to $7.1925 a bushel.

U.S. farmers will harvest 12.664 billion bushels of corn, down from 13.16 billion projected a month ago and less than last year’s record 13.11 billion, the USDA said today in a report. The average estimate of 26 analysts surveyed by Bloomberg News was for 12.977 billion bushels. Flooding in June and hot, dry weather in August cut Midwest yields.

Industry ‘Shocked’

“The government has shocked the grain industry with the huge cut in U.S. production,” said David Smoldt, the vice president of operations for FCStone LLC in West Des Moines. “There will be some scrambling for supplies today.”

Unsold U.S. supplies on Sept. 1, 2011, before next year’s harvest, will total 902 million bushels, compared with the month-ago forecast of 1.116 billion and 1.708 billion this year, the USDA said. Supplies will be the lowest since 1997.

“We will not produce enough to meet demand from domestic livestock producers, ethanol makers and overseas buyers,” Alan Brugler, the president of Brugler Marketing & Management Inc. in Omaha, Nebraska, said before the report. “We are going to run up the price to slow demand and encourage farmers to plant more next year.”

The U.S. soybean crop will be a record 3.408 billion bushels (92.8 million metric tons), compared with 3.483 billion projected in September and 3.359 billion gathered last year, the USDA said. August rains failed to boost yields, and the government reduced its acreage estimates. Analysts in the Bloomberg survey expected 3.501 billion bushels.

‘Too Many Uncertainties’

“The USDA surprised the trade with a cut in U.S. soybean yields and an unexpectedly large cut in planted acreage,” FCStone’s Smoldt said. “There are just too many uncertainties about global supplies” with dry weather already delaying planting in parts of South America, he said.

Global wheat stockpiles will total 174.66 million metric tons on May 31, down 1.8 percent from 177.79 million estimated last month, the USDA said. The average estimate of 13 analysts in a Bloomberg News survey was 177.43 million tons.

Unsold supplies in the U.S., the world’s largest exporter, may fall 5.4 percent to 853 million bushels (23.22 million tons), from 902 million bushels estimated in September, the department said. U.S. production was projected at 2.224 billion bushels, down 1.8 percent from the September estimate while up 0.3 percent from last year. The USDA also lowered its inventory estimates for the European Union and Canada.

“Possibly, there will be some switching from corn to wheat” in feed rations, said Tom Leffler, the owner of Leffler Commodities LLC in Augusta, Kansas. “The biggest thing is, end- users beware, because quite honestly, they’re screwed. Talk of $6 corn is very, very possible now.”

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Whitney McFerron in Chicago at wmcferron1@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.