Corn, Wheat Surge as Supply Drop Exceeds Forecast: Chicago Mover

Corn and wheat surged the most in at least three months after a government report showed drought and rising demand eroded stockpiles more than previously forecast in the U.S., the world’s biggest grain exporter.

Corn futures for March delivery surged as much as 3.6 percent on the Chicago Board of Trade, before settling up 1.4 percent at $7.0875 a bushel at 2 p.m. Wheat futures for March delivery gained as much as 3.8 percent, the most since Sept. 28, before settling at $7.5475 a bushel, up 1.4 percent.

Inventories of corn on Dec. 1, after the 2012 harvest, were 8.03 billion bushels, down 17 percent from a year earlier and the smallest for that date since 2003, the U.S. Department of Agriculture said. Analysts had predicted 8.219 billion on average in a Bloomberg survey. Wheat reserves on May 31, before the 2013 harvest, will be 716 million bushels, down 5 percent from a December forecast and 741 million forecast by analysts.

“Supplies are tight, and the market’s job is to rally to slow down usage,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview. “Now the attention shifts to prevailing drought conditions in the western Midwest and the upcoming planting season.”

Crops from Ohio to Nebraska were hurt by the worst drought since the 1930s, sending corn prices up as much as 68 percent since mid-June to a record $8.49 on Aug. 10. Production plunged 13 percent and was the lowest in six years, USDA data show. Wheat prices surged to a four-year high of $9.4725 on July 23, as crop conditions deteriorated to the worst on record in November, when winter grain went dormant. The fields will resume growth in April and be harvested in June.

‘Bullish Numbers’

“The corn stocks were pretty friendly” for prices, Jason Britt, the president of brokerage Central States Commodities Inc. in Kansas City, Missouri, said by telephone. “The wheat stocks number and the acreage played into the positive side. We trade carryouts and stockpiles and we got bullish numbers in this report.”

The harvest of corn, the nation’s biggest crop, totaled 10.78 billion bushels, the USDA said in a separate report today. While that’s up from 10.725 billion estimated in December, it’s down from 12.36 billion collected in 2011 and the lowest in six years. Analysts expected 10.65 billion bushels, on average.

An estimated 4.5 billion bushels will be used to produce ethanol, unchanged from the December forecast and down from 5.011 billion in the previous year, the USDA said. Feed demand will total 4.45 billion bushels, up from 4.15 billion projected a month ago and less than 4.548 billion a year earlier, the agency said.

Harvest Decline

While the government estimates winter-wheat planting rose 1.2 percent from a year earlier to 41.819 million acres, only 82 percent, or 34.292 million, will actually be harvested after dry weather stunted growth and prevented some plants from emerging from the ground, Richard Feltes, the vice president of research at R.J. O’Brien & Associates in Chicago, said in an e-mailed report today.

The USDA forecast lower domestic wheat stockpiles as the amount used in animal feed is set to increase. About 350 million bushels will be used in cattle rations, 11 percent more than the 315 million projected last month, according to the report.

Since reaching their highs last year, grain prices had tumbled as the outlook for global supply improved and demand slowed. Corn futures slipped as much as 19 percent from their closing high in August, while wheat slipped into a bear market, dropping as much as 21 percent. That may have sparked demand from users and speculative investors, Britt said.

“Corn, wheat, even soybeans, a lot of these markets suffered into the end of the year,” he said. “A lot of New York guys and Chicago guys were selling, and the funds were leaning to the short side. You get too many people on one side of the boat and eventually it’s going to tip over.”

-- Editors: Steve Stroth, Thomas Galatola

To contact the reporters on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net, or Jeff Wilson in Chicago at jwilson29@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.