US corn extends fall but demand begins to revive

There were signs, however, that buyers, particularly in Asia, were beginning to respond to a drop of about 20 percent from record prices in three weeks.

"Weather conditions in the US will be keenly watched to reflect if this additional supply materialises, but for now the corn market is likely to come under further pressure after yesterday's bearish reports," Barclays Capital analyst Sudakshina Unnikrishnan said in a market note.

December corn on the Chicago Board of Trade fell about 6 percent to a low of $5.78-1/2, the weakest level for the contract since mid-March. It has now plunged more than 20 percent from a peak of $7.22-3/4 set on June 9.

Some analysts saw the decline as overdone, particularly as lower prices appeared to be reviving demand.

"Prices are going to bounce back as this is a knee-jerk reaction,"said Abah Ofon, agricultural commodities analyst with Standard Chartered Bank in Singapore.

China has bought as much as 1.6 million tonnes of new-crop US corn in recent deals, taking advantage of a steep fall in global prices from record highs over the last three weeks to replenish its reserves.

Feed millers in Japan, the world's biggest corn buyer, are expected to lock-in supplies, buying cargoes for August and September shipment after a slowdown in imports since the March earthquake.

"In general, I think buyers will be back in the market," said Nobuyuki Chino, president of Tokyo-based grains trading firm Continental Rice Corporation.

In its quarterly report on Thursday, the USDA said the corn stockpile was 3.67 billion bushels on June 1, and it pegged plantings at 92.28 million acres.

With normal weather and yields, a record-large crop could be reaped during the harvest, which is two months away.

OVER OPTIMISTIC

Some traders said the USDA was too optimistic as, for example, it has North Dakota plantings down by 1 percent, while state officials say 25 percent may go idle.

"People are still digesting the USDA report with the talk about if the report really reflects the impact of wet weather in US corn regions," one European trader said.

"People are also remembering there was also a lot of disagreement over USDA corn stock figures at this time last year. But the trouble is the USDA figures are in the market and have to be accepted."

CBOT wheat also fell in early trade, extending the prior session's steep setback, before rebounding cc to little changed levels.

December wheat was up 3-1/4 cents at $6.60-3/4 a bushel, well above its early low of $6.39, the weakest level for the contract since July 2010.

Prices in Europe were also higher, supported by technical support and scepticism about the US data.

"We had to trade on basis of the USDA figures yesterday," a grain trader said, adding: "There will inevitably be adjustments to the area estimate."

November wheat in Paris rose 3.25 euros to 187.75 euros a tonne after hitting a low of 183.00 euros. The contract has lost about 28 percent of its value since hitting a high of 254.50 euros in May.

The USDA report was more supportive for soybeans, with plantings below market expectations, but prices were driven down by weakness in corn and wheat on Thursday.

Prices began to recover on Friday with July up 6-1/2 cents at $13.12-3/4 a bushel.

Copyright Reuters, 2011