US corn futures plunged more than 6 percent on Friday, ending the month 23 percent lower and marking the biggest monthly decline in more than 15 years, after a government report showed a larger corn supply than expected. The spot corn price was locked at the loss limit for most of the trading session, falling to the lowest point in 9-1/2 months and closing below $6 for the first time since January.
The price plummet helped lift shares of food companies because lower corn costs should help pare costs for heavy corn users. The spot corn price has dropped 26 percent from a record high of nearly $8 per bushel set in June. Shares of Smithfield Foods, Tyson, Sanderson Farms, and Pilgrim's Pride, big users of corn for livestock and chicken feed, all rose Friday.
"It's a big deal," said D.A. Davidson & Co analyst Timothy S. Ramey. "I don't know if it's sustainable, but it's a big deal. If you look at companies like Smithfield and Tyson, a big chunk of their cost of goods sold is corn. It's the largest feed ingredient for sure."
The larger-than-expected corn supply prompted speculation that wheat was increasing as a substitute for corn in livestock feeding, and the wheat price declines also aid the food companies. Still, larger-than-expected wheat stocks estimates by USDA contradicted such ideas. Wheat prices ended down 7 percent on the day, 23 percent for the month of September and down 7.7 percent for the third quarter.
Soybean futures were off 4 percent on the government data which largely showed ample supplies. That left soybeans down 19 percent for the month of September, the biggest monthly drop in three years, and down 9 percent for the quarter. The US Department of Agriculture pegged US corn stocks as of September 1 at 1.128 billion bushels, well above trade estimates of 964 million bushels, but still down from last year's 1.71 billion bushels.
The number was so large that many analysts were sceptical of its validity. "It is hard to believe that people are having a hard time finding corn if we really have 1.1 billion bushels," said Mark Schultz, the chief analyst at Northstar Commodity Investments Co in Minneapolis. "It just doesn't quite seem to be realistic to me," he said. CBOT December corn ended down 40 cents a bushel, or 6.3 percent, at $5.92-1/2. The all-time high, set in June, was $7.99-3/4 for the spot contract. CBOT November soybean futures closed off 51 cents, or 4.15percent, at $11.79. And CBOT December wheat was down 45 cents, or 6.9 percent, at $6.09-1/4.
Volume was heavy as commodity funds liquidated an estimated net of 30,000 corn contracts on the CBOT; 15,000 soybean contracts; and 8,000 wheat contracts. USDA estimated soybean stocks at 214.7 million bushels, below trade estimates for 225 million bushels, a factor that helped underpin soybean prices and limit losses. Year-ago stocks were nearly 150.9 million.
Wheat stocks were pegged at 2.150 billion bushels, above estimates for 2.035 billion bushels, but down from 2.45 billion a year ago. USDA estimated the 2011 US wheat crop at 2.008 billion bushels, below trade estimates for 2.044 billion. USDA pegged the US spring wheat crop, excluding durum, at 462.47 million bushels, below estimates for 493 million.
Prior to Friday's drop, Chicago wheat futures were on track for a 12 percent rise over the quarter, supported by concerns about dry conditions affecting winter wheat sowing in the United States and Ukraine and signs that high corn prices have led to animal-feed demand being transferred to wheat. Those fundamentals remain viable factors, traders said.
Moreover, good corn demand from China remains supportive for corn futures, though it was doing little to help underpin the market Friday. The US Grains Council said China could still import some 8 million tonnes of corn at the current 95 percent self-sufficiency target and the volume could jump to as much as 16 million tonnes if Beijing cut the target to 90 percent.
The drop in corn prices is in line with seasonal harvest pressure trends, said Sal Gilbertie, president of Teucrium Trading, which runs single-commodity ag funds. "This report plays right into the fairly strong seasonal pattern where corn and other grains at harvest go into a downtrend for part of the fourth quarter," Gilbertie said.