The United States painted a rosier picture for global grain stocks and the U.S. winter wheat crop on Thursday in a report set to knock prices back toward recent-year lows.
The U.S. Agriculture Department projected that after a larger-than-expected harvest last year, corn and soybean stocks will be much higher at the end of this marketing year than traders had predicted. Farmers were also taking advantage of good soil conditions to sow a bigger-than-expected winter wheat crop.
With Chicago grain prices expected to fall by as much as 3 percent when trading opens, the report will be welcomed by governments around the globe that fear a worsening drought in South America could strain grain stocks which remain relatively thin.
Grain prices had been on the rise since reaching a more-than-one-year low in December on concern that Argentina's corn crop was shrinking under a withering drought. But Thursday's report will take the wind out of the market's sails.
"It was pretty much negative across the board," said Mark Schultz, an analyst at Northstar Commodities. "The biggest shocker is that the corn crop ended up getting larger, not smaller."
USDA projected corn ending stocks at 846 million bushels, 2 million bushels lower than its estimate last month but a whopping 13 percent higher than traders expected, on average, in a Reuters survey.
Soybean ending stocks at 275 million bushels were 18 percent higher than traders had forecast.
USDA's January crop report is hotly awaited by global grain markets and has a tradition of roiling markets with surprises. This report could send prices down their daily trading limits, bringing to a quick halt a recent rally in grain prices after months of declines.
But it will stir more controversy with grain traders who have been caught wrong-footed by USDA reports several times in the recent past. Analysts were unusually divided on the corn stocks data ahead of its release.
The USDA increased its corn production estimate marginally, where analysts had expected a small dip. At the same time, the agency stood pat on its estimates of corn consumption by livestock operations and the ethanol industry.
But the agency was conservative on how badly the dry conditions have reduced potential South American production.
For soybeans, a small bump-up in USDA production estimates was coupled with a 2 percent cut in exports and a drop in domestic use.
In the first estimate of wheat acreage for the year ahead, the report showed farmers took advantage of good fall moisture conditions to plant 41.947 million acres, up 3.2 percent from a year earlier and 2.5 percent beyond trade expectations ahead of the report.
On Dec. 1, bins held 2.7 percent more corn and 1.8 percent more soybeans than traders had expected, another indicator of larger-than-expected supplies and disappointing demand for the crops. (Reporting by Roberta Rampton; editing by Jim Marshall)