CHICAGO: US soybean futures surged to a seven-month high o n T uesday after the USDA cut its South American crop forecast more than traders expected, putting soybean futures a whisker away from the record high hit in 2008.
A devastating drought in Brazil and Argentina has slashed production in the world's second and third largest soybean exporters after the United States, boosting demand for US exports.
The US Department of Agriculture on Tuesday reduced its outlook for soybean production in Brazil by 12 percent and in Argentina by 13 percent from its forecast in December, when Chicago Board of Trade soybeans began a 32 percent surge.
The USDA's supply-demand report pegged Brazil's soybean crop at 66 million tonnes and Argentina's at 45 million, both below trade expectations.
The smaller crops in South America have helped to boost exports from the United States, with the sale of 165,000 tonnes of soybeans to China announced by the USDA on Tuesday giving the market an additional boost.
"The report fed the bulls. The fact USDA cut 3-1/2 million tonnes of soy from Brazil and Argentina combined was at the high end of estimates," said Mike Zuzolo, analyst for Global Commodity Analytics in Lafayette, Indiana.
Spot Chicago Board of Trade May soy peaked at $14.52-1/4 per bushel and was $2.10-3/4 per bushel or 32 percent below the record high of $16.63 set in late July 2008.
Corn futures briefly turned firm on spillover support from soaring soy, but soon slipped because the USDA maintained its previous estimate of US corn ending stocks instead of reducing its estimate by 1 percent as traders had expected.
Wheat turned higher on USDA's forecast reduction in US wheat ending stocks for the current marketing year.
At 11:00 a.m. CDT (1600 GMT) , CBOT May soy was up 15-1/2 cents per bushel at $14.46-1/2, May corn was down 2 at $6.47 and May wheat was down 1/2 cent at $6.42-1/2.
The USDA forecast the ending stocks of US soybeans at 250 million bushels, down from 275 million in its March outlook and about in line with the average of analysts' estimates for 246 million.
USDA served up a bearish surprise for the corn market when it forecast the supply of corn would total 801 million bushels at the end of August, the end of the current marketing year (2011/12).
Although the total would be the lowest in 16 years, it was unchanged from USDA's forecast in March and defied analysts' estimates for a 10 percent downward revision to 721 million bushels.
"My first question is, did the USDA take the month off? For the corn, they kept everything the same but they put in their comments that they are looking at early 2012 corn usage to take up the slack for 2011, which is kind of confusing since they supposedly keep that separate," Zuzolo said.
A majority of analysts expected USDA to trim its corn stocks estimate since the government in its quarterly stocks report at the end of March had pegged the corn supply below estimates. That report triggered a limit-up move of 40 cents per bushel in CBOT corn futures.
"It is still a little hard to explain how you have higher than expected second quarter (corn) usage but make no changes on your balance sheet. We will go right back to trading the weather," said Shawn McCambridge, analyst for Jefferies Bache.
USDA lowered its outlook for US wheat ending stocks to 793 million bushels from the March outlook for 825 million.
MARKET ATTENTION TURNING TO US WEATHER
Traders and analysts kept a close eye on a cold snap this week in the US Midwest. Cold weather would threaten any emerging corn, still a relatively small amount this early in the season even though 7 percent of the US corn crop had been planted by Sunday, the fastest pace on record.
Colder weather is blanketing the northern US Midwest early this week and freezing temperatures are likely by early Wednesday into the central Midwest. So far there are no signs the cold snap would move into the heading winter wheat crop in the southern Plains or the southern Midwest.
"Temperatures will be near freezing as far south as Missouri. I don't think there will be any serious harm but it might touch up any emerging corn," said Don Keeney, meteorologist for MDA EarthSat Weather.
Keeney said temperatures could fall to freezing (32 degrees Fahrenheit) to the upper 20s F in the north.
Crop-friendly rainfall covered many of the drier areas of the US Plains hard red winter region this week and will extend into the western Midwest and northeast Plains later in the week.