Markets soar as USDA slashes soy, corn stocks

(Reuters) –– America’s stockpiles of corn and soybeans will be drawn down to uncomfortably thin levels this year, according to a government report Wednesday that sent grain prices soaring and added to concerns over surging world food prices.

Dwindling stocks in the world’s biggest food exporter — depleted by strong ethanol demand and a sharp reduction in estimated corn and soy production last year — and poor crops in other major exporting countries are setting up what could be one of the toughest years for food prices and supplies since 2008.

The market is drawing parallels with the tight supplies of that year and is concerned that runaway food prices could again lead to shortages and unrest in poor countries.

So far, there has has been nothing like the food riots seen two years ago.

The U.S. Department of Agriculture forecast that by the time next year’s crop is ready for harvest in September stocks of soybeans will be just 140 million bushels, 10 per cent below analyst expectations. Corn stocks will likely stand at 745 million bushels, four per cent below trade forecasts and the smallest supply since 1995.

Both corn and soybeans touched their daily trading limits and hit 30-month highs on the Chicago Board of Trade (CBOT) after the surprising report. Soy was up more than 4.6 per cent to $14.12 a bushel while corn was up 4.12 per cent at $6.32-1/4 a bushel (all figures US$).

“These numbers are bullish numbers across the board,” said Rich Nelson, an analyst with the brokerage Allendale Inc. “Most of the moves were made on production revisions and that should be a surprise to most of the trade.”

Soaring grains sent livestock prices higher as the rising cost of feeding animals was expected to crimp herd sizes and push up the cost of meat and dairy products.

Corn yields trimmed

The U.S. Agriculture Department said the corn stocks-to-use ratio — an important indicator of supply and demand — was projected at 5.5 per cent, the lowest since 1995-96 when it dropped to five per cent. The ratio reflected USDA’s lower yield estimates for last fall’s harvest and higher ethanol use outlook.

The stocks-to-use ratio for soy was 4.2 per cent, the lowest level since soybeans became a major crop for U.S. farmers, said Keith Menzie, an oilseeds analyst for the department’s World Agricultural Outlook Board.

Stocks of U.S. soybeans totaled only 2.28 billion bushels as of Dec. 1, or three per cent less than traders had expected, while the production forecast was 1.3 per cent lower than expected by the market at 3.329 billion bushels.

“With our strong demand we shrunk our supply of corn and beans and consequently the market is racing higher to ration supplies,” said Don Roose, analyst with U.S. Commodities.

USDA said Dec. 1 corn stocks also came in slightly lower than expected at 10.04 billion bushels, down eight per cent from a year ago and just below the 10.067 billion bushels on average expected by traders.

Wheat inventories at Dec. 1 were closer to expectations at 1.93 billion bushels, up eight per cent from a year ago.

USDA boosted wheat exports because of brisk sales to date and reduced competition from flood-hit Australia.

It was also a big day for agribusiness companies on U.S. markets, with Saskatchewan-based fertilizer maker PotashCorp up more than 2.6 per cent and Monsanto up 3.5 per cent. Tyson Foods, possibly facing higher feed costs in producing its meat products, fell more than one per cent.

Cargill reported sharply higher earnings on Wednesday, helped by its fertilizer producer, Mosaic, which was up over four per cent on the market.

Big wheat plantings

USDA also released its first estimate of winter wheat plantings. At 40.99 million acres it represented a 10 per cent increase over last year and reflected strong prices and good planting conditions.

Strong world demand led by China and one of the hottest years on record combined to diminish crop inventories globally in 2010. Concern is now mounting that output will be hurt further by bad weather in big producing countries such as Australia and Argentina this year.

USDA has not yet forecast how many acres U.S. producers will plant to corn and soybeans this spring. But this year is off to a bad start in other parts of the world with searing heat in Argentina and floods in Australia darkening the outlook for their big harvests.

USDA cut its forecast of Argentina’s soy production by three per cent from last month and also cut Argentina’s corn outlook by six per cent.

Australia’s wheat crop outlook was trimmed by two per cent from last month, and exports were forecast to decline 1.5 million tonnes as heavy rain and flooding reduced the quality of the harvest and further pressured world supplies and prices.

However, the USDA increased global 2010-11 wheat ending stocks slightly. Traders had expected a cut.

Russell Blinch writes for Reuters from Washington, D.C., with additional reporting for Reuters by Karl Plume in Chicago.

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