Corn plunges on US crop weather, ethanol worries

CHICAGO: US corn futures posted their biggest drop in a month on Tuesday, briefly falling their 30-cent limit, on improving US crop weather and concerns about flagging demand from the ethanol sector.

Corn's decline created further distance from last week's record rise to near $8 a bushel, and pulled wheat and soybeans down with it.

"The weather is favorable. We have got a lot of heat coming in next week. It's going to push crop maturity, and in a late-planted crop, that's beneficial," said Dan Cekander, analyst with Newedge USA in Chicago.

As of 11:41 a.m. CDT (1641 GMT), July corn was down 26-1/2 cents at $7.56 per bushel, after falling its 30-cent limit to $7.52-1/2.

The US Department of Agriculture said late Monday that 69 percent of the corn crop was rated good-to-excellent, up 2 percentage points from a week earlier and one point ahead of consensus.

Soybeans and wheat followed corn lower, shrugging at early strength in crude oil and a softer US dollar.

Wheat also faced seasonal pressure from the expanding harvest of the US winter wheat crop.

The market was unmoved by news that Egypt bought 120,000 tonnes of US and French wheat at its first global tender in four months.

The combination of corn's sell-off and seasonal pressure from the US winter wheat harvest overshadowed news of the Egyptian wheat purchase.

July wheat was down 19-1/2 cents at $7.23-1/2 a bushel and July soybeans were down 19 cents at $13.63-3/4 a bushel.

Concerns about a slowdown in demand from ethanol refiners weighed on the corn market. Talk circulated that a handful of ethanol plants in the eastern United States might shut down, because high corn prices were hurting margins.

The US Senate was expected to vote on Tuesday on a proposal to end a federal ethanol blenders' tax credit and the tariff on ethanol imports.

The vote comes as US lawmakers are looking for ways to cut spending and as criticism mounts globally over subsidies for corn-based ethanol, blamed by some for pushing up food prices.

"There is discussion as to whether it's immediate or at the end of the year, ... but there is pretty much certainty on both sides of the aisle that it's going to be cut to some degree," Prudential Bache Commodities analyst Shawn McCambridge said of the subsidies.

"With the elimination of the blenders credit, we will probably see some more curtailment of production," he added.

However, he noted, eliminating the subsidies will not affect the US government's biofuels mandate.

"Unless they were to mess around with the mandate, which has not even been discussed, the demand is still there. It's not like we have 5 billion bushels more (corn) on the balance sheet."

USDA has projected that 5 billion bushels of last year's corn harvest, or 40 percent, would be used for ethanol.

Adding to bearish sentiment in the grain markets were fresh Chinese efforts to fight inflation. China ordered its banks to lock up more deposits at the central bank for the sixth time this year, making clear that taming near three-year-high inflation remains a priority even as its vast economy eases.

China is the world's top buyer of soybeans.

Copyright Reuters, 2011