Corn rallies limit-up on USDA end-season stocks surprise

October 1st, 2012

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Category: Grains, Oilseeds

(Reuters) – U.S. corn futures surged the daily trading limit on Friday, jumping 5.6 percent after the government shocked the market with a report that end-of-season stocks tumbled 12 percent from a year ago, coming in at less than 1 billion bushels for the first time in eight years.

Wheat futures jumped 5.5 percent, the strongest gain in three months, as the U.S. Department of Agriculture said Sept. 1 stocks of the grain declined year-on-year, counter to trade expectations for an increase.

Soybeans followed corn higher, rising nearly 2 percent despite a smaller-than-expected drop in ending stocks. Technical buying gave prices a boost, as well as expectations for continued solid demand for the oilseed.

Corn pulled grains markets higher after a rough week in which corn and soybean prices sank to three-month lows on pressure from an accelerating Midwest harvest and month-end and end-of-quarter liquidation by funds.

“A sub-one-billion (bushel) number is enough to get the market nervous. Combine that with the market getting oversold the past month and it’s leading to pretty good gains,” said Sterling Smith, futures specialist for Citigroup.

Friday’s USDA report was the latest in a string of releases by the agency that have roiled markets over the past three years.

USDA SURPRISE

The U.S. corn stockpile was 11 percent below analysts’ expectations at 988 million bushels, USDA said on Friday in a surprising report that presaged razor-thin supplies for the third year in a row.

USDA also said its survey of farmers and warehouses showed the soybean stockpile at the Sept 1 start of this marketing year was 29 percent, or 38 million bushels, larger than what traders had expected.

Wheat stocks also were surprisingly low, coming in eight percent below trade estimates.

“(Corn) feed use in the fourth quarter was bigger than people had thought so we’re going to hear talk that we’re going to do a better job of rationing in the feed sector. That’s not so easy to do,” Said Don Roose, president of U.S. Commodities.

December corn futures on the Chicago Board of Trade closed locked limit-up, rising 40 cents, or 5.6 percent, to $7.56-1/4 a bushel after dipping to a three-month low of $7.05 before the report. It was the steepest rally for a spot month contract since July 5.

Corn futures were up 1.1 percent from a week ago, the first weekly gain in four weeks, but down for a second straight month, shedding 5.8 percent. The market was up 12.5 percent in the quarter, its strongest performance in seven quarters.

Commodity funds bought an estimated net 28,000 corn contracts on the day, the biggest net purchase by funds since June 26, according to trade sources.

Trade in corn options indicated that December corn could open 1 cent to 1-1/2 cents higher when electronic trading opens on Sunday evening. The market had been trading synthetically 5 to 6 cents higher before fading into the close.

The corn futures trading limit will expand to 60 cents on Monday.

WHEAT, SOYBEANS RISE

CBOT December wheat climbed 47 cents to $9.02-1/2 per bushel, a 5.5 percent gain that was the largest for a front-month contract since June 25 and the first in five sessions.

Wheat gained 0.6 percent in the week and 3.7 percent in the month. The market also climbed for a fifth straight quarter, adding 22 percent.

Soybeans shrugged off early pressure from a bearish stocks report, supported by steady export demand and worries about thin global supplies through at least early 2013. Technical buying added further support.

“We have an excellent demand base for beans. USDA has already told us we’ve sold 77 percent of what they suggest we would sell (for export) for the entire year,” said Tom Fritz, a partner with International Futures Group LLC.

“The only reason the stocks report was bearish was because they revised last year’s crop up by 37 million bushels. Overall the carry-in is still tight and we have an excellent demand base for the next five months.”

November soybeans rose 30-1/4 cents, or 1.9 percent, at $16.01 a bushel in the steepest jump in 2-1/2 weeks.

Still, the front-month soybean contract was down for a second consecutive week after shedding 1.3 percent, and down 9.3 percent in September, the first monthly drop in four months. For the quarter, soybeans gained 5.8 percent, a fourth straight quarterly rise.

Commodity funds were net buyers of an estimated 18,000 soybean contracts and 7,000 wheat contracts, sources said.

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