In a topsy turvy day, the exhausted market pushed grain and oilseed prices lower after a report that on the face of it was strongly bullish.
The U.S. Department of Agriculture’s supply and demand report this morning slashing the U.S. corn yield and production estimate more than expected.
The savage drought gripping the U.S. heartland also caused USDA to drop its soybean yield and production estimate.
The department also cut its domestic spring wheat and world wheat production estimate.
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The implications of this crop disaster are high food prices and a devastating blow to U.S. livestock producers who will face soaring costs to feed their livestock.
The impact will wash into Canada with wheat, barley and canola prices also remaining high.
However, after opening higher, corn and oilseed prices fell on a forecast for better rain in the Midwest late this week that would help soybean production. Markets were also increasingly focused on how much the higher prices will reduce demand.
November canola closed at $627.10, down $4 from the previous day’s close. It peaked at $637.80 before falling.
In Chicago, corn and soybeans closed down after jumping higher immediately after the USDA report. Currency fluctuations were also at work this morning, affecting grain prices. Also, the fact that grain prices did not post limit up gains following the USDA report shifted the market away from bullish optimism and caused some profit taking.
Spring wheat in Minneapolis closed higher after USDA cut its forecasts of the U.S. hard red spring wheat crop and global production.
USDA cut its corn yield to 146 bushels per acre, down a whopping 20 bu. from its initial outlook of 166 bu.
Production was cut to 12.97 billion bu., down from 14.79 billion last month.
With production down and prices up, USDA cut its demand outlook. As the day progressed, traders increasingly focused on the demand numbers.
Corn feed and residual use was cut by 650 million bu., exports by 300 million bu. and ethanol production was sliced down 100 million bu.
Ending stocks for 2012-13 are pegged at about 1.2 billion bu., down almost 700 bu. from last month’s projection.
Overall, corn production fell 12 percent from the June estimate and demand was lowered eight percent and analysts are considering whether the demand number will fall further as livestock feeders and ethanol producers reel from the high corn prices. U.S. ethanol last week had already dropped to the lowest level in two years.
USDA estimated soybean production at 3.050 billion bu., down 155 million as increased harvested area is more than offset by reduced yields.
Harvested area, estimated at 75.3 million acres in the June 29 acreage report, is 2.3 million above the June projection. The soybean yield is projected at 40.5 bu. per acre, down 3.4 bu. from last month.
USDA reduced its outlook for domestic crush and exports, but its ending stocks forecast still fell, to 130 million bushels, down from 140 million last month and 170 million at the end of 2011-12.
It sees the U.S. hard spring wheat crop at 435 million bu., below forecasts for 492 million bu.
Durum production was put at 82 million bushels, a little lower than the average of pre-report estimates, but with the overall range.
USDA pegged world wheat production at 665.33 million tonnes, down from 672.06 last month and 694.69 million last year.
The cut was mostly due to a reduction in Black Sea production to 88.56 million tonnes from 94.76 million last month.
The Black Sea exporting region has suffered several challenges, from bad winter weather to summer heat and drought in some places and excess moisture in others.
Winnipeg (per tonne)
Canola Jul 12 $687.10, down $4.00 -0.58%
Canola Nov 12 $627.10, down $4.00 -0.63%
Canola Jan 13 $630.00, down $4.80 -0.76%
Canola Mar 13 $628.60, down $6.20 -0.98%
The July contact expires today.
The best bid in the par region July 10 was $666.10, said ICE Futures Canada. November closed yesterday at $628.00 implying a basis of $38.10 over the November futures.
The 14-day relative strength index was 75.
Western Barley Jul 12 $257.00, up $10.00 +4.05%
Western Barley Oct 12 $251.00, up $10.00 +4.15%
Milling Wheat Oct 12 $300.50, unchanged
Milling Wheat Dec 12 $308.00, unchanged
Milling Wheat Mar 13 $318.00, unchanged
Durum Wheat Oct 12 $310.50, unchanged
Durum Wheat Dec 12 $315.00, unchanged
Barley Oct 12 $259.50, up $4.50 +1.76%
Barley Dec 12 $262.20, up $4.50 +1.75%
Barley Mar 13 $265.20, up $4.50 +1.73%
Chicago (per bushel)
Soybeans (P) Jul 12 $16.23, down 25.75 cents-1.56%
Soybeans (P) Aug 12 $15.715, down 19.0 -1.19%
Soybeans (P) Sep 12 $15.4075, down 17.0 -1.09%
Soybeans (P) Nov 12 $15.225, down 16.0 -1.04%
Corn (P) Jul 12 $7.5075, down 10.25 -1.35%
Corn (P) Sep 12 $7.04, down 14.5 -2.02%
Corn (P) Dec 12 $7.04, down 13.5 -1.88%
Oats (P) Jul 12 $3615, down 14.25 -3.79%
Oats (P) Sep 12 $3.6425, down 12.75 -3.38%
Oats (P) Dec 12 $3.6625, down 14.25 -3.75%
Minneapolis (per bushel)
Spring Wheat Jul 12 $9.14, unchanged
Spring Wheat Sep 12 $9.20, up 2.0 cents +0.22%
Spring Wheat Dec 12 $9.1575, down 0.5 -0.05%
Nearby crude oil in New York closed at $85.81, up $1.90.
The Bank of Canada noon hour rate for the Canadian dollar was 98.09 cents US, little changed from 98.01 the previous trading day.
The U.S. dollar was $1.0195 Cdn.
In early tallies:
The Toronto Stock Exchange’s S&P/TSX composite index closed up 32.42 points, or 0.28 percent, at 11,544.64.
The Dow Jones industrial average dropped 80.91 points, or 0.64 percent, to 12,572.21.
The Standard & Poor’s 500 Index slipped 3.37 points, or 0.25 percent, to 1,338.10.
The Nasdaq Composite Index fell 23.84 points, or 0.82 percent, to 2,878.51.
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