Grain and oilseed prices jumped after US officials cut their forecast for domestic corn stocks and, while raising hopes for the soybean harvest, said that buyers would swallow up nearly all the extra supplies.
The US Department of Agriculture, in its much-watched Wasde crop report, downgraded its estimate for US corn inventories at the close of 2012-13 to 619m bushels, the lowest for 17 years, and a deeper reduction than investors had expected.
While the estimate for the harvest was trimmed by less than investors had expected, reflecting a unexpectedly low figure for crop abandonment to the worst drought since 1956, the USDA eschewed further cuts for forecasts for domestic consumption of the grain.
On soybeans, the USDA upgraded by some 226m bushels to its forecast for the US harvest, saying that sowings had exceeded previous expectations, and with yields turning out better than had been feared too.
Market reaction
However, while the raise to the harvest estimate beat market forecasts, so did USDA ideas for demand, which were seen sufficient to swallow all but 15m bushels of the extra output.
The immediate market reaction was to push up grain prices which had fallen into the report on expectations that the estimate revisions would show a larger easing in the squeeze in US corn and soybean supplies.
Chicago soybeans for November, up 0.7% ahead of the Wasde, extended gains, if closing well off their intraday high.
Corn recouped small losses to post a gain of 5%, helping wheat make headway of approaching 2%.
Slow pace of exports
The revisions to the corn crop reflected a small upgrade to the estimate for harvested area, offset by a trim in the yield estimate to 122.0 bushels per acre, rather than the slight increase that analysts had forecast.
On demand, the USDA further reduced estimates for US corn exports, by 100m bushels to a 38-year low of 1.15bn bushels, "based on the slow pace of sales to date and strong competition from Brazil".
However, it surprised many investors by sticking with a forecast that US livestock farmers will get through 4.15bn bushels of the grain in 2102-13.
The forecast for farmgate corn prices over the season was reduced, but by a modest $0.10 a bushel, to $7.20-8.50 a bushel, from the September estimate, a smaller decline than sustained by futures over the past month.
Extra area
For soybeans, production hopes received a twin boost from ideas that the yield had come in better than previously feared, and by a 1.1m-acre upgrade to the estimate of harvested area, after spring sowings were deemed larger than had been thought.
The estimate for the area harvested in Illinois, the second-ranked producing state, was lifted by 450,000 acres, with those for Indiana and North Dakota receiving 150,000-acre upgrades.
However, all but 15m bushels of the extra production was seen being swallowed up by domestic crushers and, in particular, importers such as China, whose purchases were seen rising to a record 61.0m tonnes.
Indeed, even though estimates for US stocks were kept near to historic lows, those for other major consuming countries were edged higher, suggesting that the USDA believes the extra domestic production will largely go to allowing some breathing space in importing nations.
'Put a floor under corn'
The data were viewed as broadly supportive to grain and oilseed prices, with Richard Feltes at RJ O'Brien saying that "against a backdrop of tight supplies and an uncertain 2013 South American season, we think putting the October report in the rear view mirror will pre-empt new lows".
US Commodities said that the data had "put a floor under corn".
And at Teucrium Trading, a New York-based issuer of agriculture-based exchange traded funds, president Sal Gilbertie said that the data showed "very, very" tight supplies of, in particular, corn, likely meaning more "price rationing to prevent balance sheets becoming critically unbalanced".
Globally, "everyone is finding a tightening balance sheet, and will likely see higher prices in the near future of basic food stuffs," Mr Gilbertie said.
He cautioned that historically, demand destruction had been harder to achieve "than people suspect", signalling that, with US harvests close to completion, consumption factors looked set to gain more attention in markets.
