Futures sold off across the board this morning, despite a USDA report that raised carryout less than expected, at least in the U.S. However, rising inventories of corn, soybeans and wheat around the world quickly grabbed traders' attention, causing prices to move lower.
Corn was trying to turn higher as the noon hour approached. Corn initially traded higher on the headline number, which showed projected 2012 ending stocks in the U.S. rising to 757 million, up 125 million. That was only 1 million bushels shy of Farm Futures forecast, but the trade expected a bigger increase following USDA's bearish assessment of March 1 inventories at the end of last month.
Instead, USDA cut its forecast of feed usage by 150 million, and trimmed another 25 million bushels off exports. But those reductions were partly offset by a 50 million bushel boost in corn used for ethanol production. That logic for increase appeared borne out by today's production numbers from last week, which showed output rising 47,000 barrels a day to its highest level since the end of June, when the drought began a rapid rise in corn prices to record levels.
The friendly corn number on the U.S. balance sheet was offset by a boost in world ending stocks caused by larger crops in Europe and Brazil. That caused the agency's estimate of world carryout to rise by more than 300 million bushels, with the government also forecasting a big drop in Chinese feed usage.
UDSA made no changes to its forecast for U.S. carryout, which stayed at 125 million bushels despite its previous March 1 stocks report that was up to 70 million bushels above trade guesses. While the agency cut its forecast of residual use to just 5 million bushels, the reduction was offset by increased crush and exports.
However, the numbers were not so friendly on the world scorecard. USDA increased its estimate of South American production, but said China would import less of the crop. As a result, the government said world stocks on Aug. 31 would be 88 million bushels higher, even though the trade expected a drop.
An initial surge above $14 by May futures quickly reversed, with a range of almost 25 cents after the report came out. May tried to trim losses as the reaction to the numbers set in but November remained weighed down by the larger world carryout number.
Wheat suffered the heaviest losses in the wake of the report, with USDA's projection for an increase in world carryout weighing on that market the most. The government added only 15 million bushels to its forecast for U.S. ending stocks, due to lower feed usage. But it said world stocks would rise by 150 million bushels, due mostly to larger 2011 crop carryout.
Wheat futures were already trading sharply lower into the report, despite a hard freeze this morning across the southern Plains.
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