Corn and soybean prices rallied Thursday after the U.S. government projected tighter supplies than analysts had expected for the two commodities.
Chicago Board of Trade December corn futures settled up 36 1/2 cents, or 5.0%, at $7.73 1/4 a bushel, reaching a one-month closing high. November soybeans rose 25 1/4 cents, or 1.7%, to $15.48 1/2 a bushel.
The U.S. Department of Agriculture Thursday boosted its estimate for the size of this fall's soybean harvest, but it also predicted that the extra supplies will largely be exported, keeping domestic stockpiles of the oilseed tight.
The USDA also cut its forecasts for this year's corn harvest and for inventories of the grain.
The forecasts renewed concerns about tight supplies of the two commodities, after the worst U.S. drought in decades shriveled crops over the summer. That led speculative market participants to buy futures, sparking a price surge.
"You had a lot of people dumping futures here the last couple of weeks, and they decided to come back in and buy them," said Sid Love, an analyst at Kropf & Love Consulting, an Overland Park, Kan., agricultural-advisory firm. "The name of the game is to cut demand" by pushing prices higher, he said.
In its monthly crop report Thursday, the USDA estimated that farmers will harvest 2.86 billion bushels of soybeans this fall, up 9% from its estimate last month. The soybean crop would still be the nation's smallest in five years. Nearly 60% of the soybean crop has been harvested, the government said earlier this week.
Rains in the Midwest in late August and early September helped the soy crop recover from the drought, but the corn crop at that time was already too far along in its growth to benefit significantly from the rainfall.
The USDA again reduced its forecast for corn production, but by less than analysts expected. It estimated the corn crop will be 10.706 billion bushels, down slightly from the 10.727 billion bushels it projected last month. The harvest would be the nation's smallest in six years.
The government lowered its projection for the national average corn yield to 122 bushels an acre from 122.8 a month ago.
The USDA forecast domestic soybean inventories next August, at the end of the 2012-13 crop year, will be 130 million bushels, below the average analyst prediction of 134 million.
Soybean supplies will tighten in part because of strong, China-led export demand. The USDA boosted its demand forecasts for domestic soybeans even as it projected a larger crop. The government raised its forecast for soybean exports in the 2012-13 marketing year by 20%.
Though the U.S. soybean harvest won't be as poor as analysts once feared, "it's definitely not something we can get complacent with," said Tregg Cronin, an analyst with brokerage Country Hedging in St. Paul, Minn. "For every bushel of supply that they created, they took it away with demand."
For corn, the USDA cut its domestic inventories forecast for the end of the marketing year to 619 million bushels, from its estimate of 733 million last month. The latest projection was lower than the 645 million bushels predicted by analysts.
The USDA left its demand forecasts mostly unchanged for corn, but pared its forecast for exports of the grain by 8%.
The government cut its estimate of global corn stockpiles next year by 5.4%, to 117.27 million metric tons. Arlan Suderman, senior market analyst for farm-advisory firm Water Street Solutions, said the government's world stockpile projection would leave a 50-day supply of corn based on current usage rates, the tightest level in 39 years.
Also Thursday, the USDA cut its forecasts for U.S. and world wheat supplies by less than analysts had expected. The USDA reduced its projection for domestic wheat inventories next May 31, the end of the current marketing year, by 6.3% to 654 million bushels. Analysts had expected a forecast of 627 million bushels.
The USDA trimmed its forecasts for wheat production in Australia, Russia and the European Union. But some analysts said Australia's wheat crop could be even smaller than reflected in the USDA's latest reduced forecast, due to dry weather.
Still, wheat futures rose, thanks to higher corn prices. The two grains often trade in tandem because both are used in animal feed.
CBOT December wheat rose 16 1/4 cents, or 1.9%, to $8.86 a bushel. KCBT December wheat rose 20 1/2 cents, or 2.3%, to $9.18 a bushel. MGEX December wheat rose 13 cents, or 1.4%, to $9.46 3/4 a bushel.
