U.S. corn futures tumbled on Thursday after the U.S. Department of Agriculture surprised traders by increasing its harvest forecast despite a late-summer stretch of hot, dry weather in key crop areas.
Soybean futures soared after the USDA, in the same monthly report, made a larger-than-expected cut to stocks remaining at the end of the crop year.
Traders had eagerly awaited USDA's outlooks for the autumn harvests and for stocks following the hot, dry weather in August, the critical growth period for the U.S. soy crop. The United States is the world's top producer and exporter of the oilseed.
With harvest at hand, the department raised its corn production estimate 0.6 per cent to a record 13.843 billion bushels, topping analysts' estimates by nearly two per cent. USDA cut is soybean harvest outlook three per cent from last month to 3.149 billion bushels, but that was in line with estimates.
However, USDA made a larger-than-expected cut to soybean ending stocks, putting them at 150 million bushels, down from its August estimate of 220 million. Traders, on average, expected 165 million.
The data were "definitely friendly on the beans and bearish on the corn," said Charlie Sernatinger of ED+F Man Capital. The trend toward more bushels of corn and fewer of soybeans was "the same thing we have been hearing from the fields, so it enhances the credibility," he said.
December corn, which represents the crop that farmers have started bringing in from the fields, touched a session low of $4.56-1/4 a bushel, nearing a three-year low of $4.45-3/4 set in August. The contract closed down 6-1/4 cents, or 1.3 percent, at $4.66-1/4 a bushel at the Chicago Board of Trade (all figures US$).
November soybeans surged 37-3/4 cents, or 2.8 per cent, to $13.96 a bushel. December wheat gained five cents, or 0.8 per cent, to $6.53 a bushel.
South America eyes soy rally
Investment bank Goldman Sachs raised its three-month price forecast for soybean futures to $12.50/bu. from $10.50 after the USDA cut its stocks and harvest forecasts. Goldman also raised its six-month CBOT soybean price forecast to $11.50 from $10.50, while leaving its corn and wheat forecasts unchanged.
In a research report, the bank said that large plantings in South America will ultimately weigh on soybean prices.
"Clearly the corn number was negative and the soybean (stocks) number was positive," said Mike Zuzolo, president of Global Commodity Analytics and Consulting. "It will probably bring back with a vengeance the soybean-corn ratio trade."
The CBOT soy/corn ratio, or the price of soy divided by corn, is a keystone annual reference point used by farmers in the U.S. and South America to determine profitability and allocation of acres for planting each crop. To a great extent, both hemisphere crops are also hedged at the CBOT.
Thursday's rally of soy futures and slide in corn increases the incentive for South American farmers to plant soybeans, traders said.
Traders are waiting for results from the early U.S. harvest, which is starting later than usual after delayed planting in the spring. Growers have already uncovered large corn yields in the southern U.S.
"Corn yields continue to run better than expected," said Karl Setzer, grain solutions team leader for MaxYield Cooperative. "Question is if this will last."
-- Tom Polansek reports on the ag sector and futures markets for Reuters from Chicago. Additional reporting for Reuters by Gus Trompiz in Paris and Naveen Thukral in Singapore.