Chicago Board of Trade March corn futures plunged 40 cents Thursday morning to a little over $6.11/bushel as traders reacted to an earlier crops report forecasting a smaller-than-expected drop in inventories.
US corn stocks are to fall 2 million bushels in January as increased export demand is expected to offset a rise in production, according to the World Agricultural Supply and Demand Estimate report released by the US Department of Agriculture.
"Basically, the report did not live up to expectations," said a market source, adding that the "market had already priced in the expectation, so now it's reacting."
As a jump in demand slightly outpaces a rise in supply, the projected total ending stocks for US corn in January edged down 2 million bushels from the December projection to 846 million bushels, according to USDA.
Specifically, the yield per harvested acre grew from a projection of 146.7 bushels/harvested acre in December to 147.2 bushels/harvested acre in January. Combined with the acreage harvested, which edged up 100,000 acres to a projection of 84 million acres in January, the higher yield led to a production growth of 48 million bushels to a projection of 12.358 billion bushels in January. The larger production figure in turn caused the total supply projection for January to increase to 13.501 billion bushels from a projection of 13.453 billion bushels in December.
But, the increase in the January projection for total US corn supply was offset by the export projection for January that was 50 million bushels higher than December at 1.65 billion bushels, causing the total corn demand figure to also rise 50 million bushels to 12.655 billion bushels. The projection in January for the amount of corn used for ethanol production was static at 5 billion bushels.
The crops report also mentioned a lower corn production estimate, down 3 million tons, for Argentina in the 2011/12 harvest season due to periods of extreme heat in December and January that have reduced yield prospects. The unfavorable weather conditions in Argentina were cited by sources to be one of the main factors for recent strength of corn futures on the Chicago Board of Trade. Argentina is the world's second-largest exporter of corn behind the US.
Unlike corn, stocks for soybean and soybean oil -- feedstocks for biodiesel production (soy methyl ester) -- are projected by the USDA to be higher in January on reduced export demand.
The US soybean January production projection was 10 million bushels higher at 3.056 billion bushels due to an increase in the yield per harvested acre to 41.5 bushels/harvested acre from 41.3 bushels/harvested acre in December, even as the projected acreage harvested edged down 100,000 acres to 73.6 million acres. The higher production figure resulted in a growth of 11 million bushels in the total US soybean supply projection for January to 3.286 billion bushels.
On the demand side, exports decreased 25 million bushels from December to 1.275 billion bushels, while crushings dropped 10 million bushels to 1.615 billion bushels. These two declines resulted in a total demand estimate of 3.011 billion bushels in January, down 34 billion bushels from the December estimate.
As estimates of total demand lessened in January and total supply grew, the ending US soybean stocks projection rose 45 million bushels in January to 275 million bushels.
The estimate for total supply of US soybean oil in January was down 165 million pounds from December to 21.215 billion pounds as production had a similar loss to 18.605 million pounds in January. Regarding demand, the projection for exports in January shrank 200 million pounds to 1.2 billion pounds as the figure for methyl ester (biodiesel) use remained unchanged at 3.6 billion pounds. As a result, the total demand estimate for US soybean oil lessened to 18.9 billion pounds from 19.1 billion pounds in December.
As the reduction in the export demand estimate for January was greater than the reduction in production, total ending stocks for US soybean oil in January were projected 35 billion pounds higher at 2.315 billion pounds.
The report mentioned that the Argentina soybean crop this season is expected to be down 1.5 million tons to 50.5 million tons and the Brazil soybean crop projection was down 1 million tons to 74 million tons as hot and dry conditions in recent weeks were causing downward revisions of estimates. The strength in soybean futures recently, like corn, were said to mostly be on weather conditions in South America. Brazil is the world's second-largest exporter of soybeans behind the US, while Argentina is the world's third-largest.
On the Chicago Board of Trade, January soybean futures were down 39 cents/bushel to $11.58/bushel and March soybean oil futures were down 1.09 cents/lb to 50.50 cents/lb.
