Corn, Soybeans, Wheat Plunge on U.S. Harvest Outlook, Recession

By Jeff Wilson

Oct. 10 (Bloomberg) -- Corn and soybeans fell the exchange limits in Chicago and wheat plunged to a 16-month low after the U.S. forecast rising inventories and the global credit crisis eroded demand for food, animal feed and biofuels.

The Department of Agriculture unexpectedly raised its estimate of the corn and soybean crops and said global wheat inventories will jump 21 percent, after record prices encouraged farmers to plant more. The MSCI World Index fell the most this week since 1970 on concern that the deepening credit crisis will send the global economy into recession.

``The USDA report was a bearish surprise,'' said Dan Manternach, ag services director for Doane Advisory Services in St. Louis. ``The big threat right now is deflation, not inflation.''

Corn futures for December delivery fell the exchange maximum of 30 cents, or 6.8 percent, to $4.0825 a bushel on the Chicago Board of Trade. Corn dropped 10 percent this week, touching $4.07 on Oct. 8, the lowest for the most-active contract since Dec. 4, extending a 16 percent decline last week for the biggest two-week plunge in at least 45 years. The price is 49 percent lower than a record $7.9925 on June 27.

Soybean futures for November delivery fell the 70-cent limit, or 7.1 percent, to $9.10 a bushel in Chicago, the lowest since Sept. 12, 2007. Most-active futures dropped 8.3 percent this week, capping a two-week decline of 22 percent, the most since July 1997. Soybeans have dropped 44 percent from a record $16.3675 on July 3.

Wheat Falls

Wheat futures for December delivery fell 41.25 cents, or 6.8 percent, to $5.635 a bushel in Chicago, after earlier dropping to $5.5775, the lowest since June 12, 2007. The price has dropped 12 percent this week, the most since March 21. Most- active futures have fallen 58 percent from a record $13.495 on Feb. 27.

Index funds that invest in baskets of commodities cut net- long positions, or bets prices will rise, in Chicago corn futures by 6.6 percent to 285,784 contracts in the week ended Oct. 7, down 37 percent from a record 452,568 contracts in April. There were 115,820 net-long positions in soybeans, down 11 percent from a week earlier and 42 percent from a February record.

``The game is still about the financial crisis and reducing leverage,'' said Dale Durchholz, a market analyst for AgriVisor LLC in Bloomington, Illinois. ``The grain markets are facing the same rush to cash as the financial markets.''


Bigger Soybean Harvest

The U.S. soybean harvest this year will be 1.7 percent larger than forecast a month ago, the USDA said today in a report, as increased acreage more than made up for a dry August that reduced yields. Farmers will harvest 2.983 billion bushels this year, up from 2.934 billion projected in September, according to the report.

A crop of that size would be 11 percent bigger than the previous year after farmers planted 19 percent more acres with the oilseed. The average estimate of 20 analysts surveyed by Bloomberg News was for 2.92 billion bushels. About 75.5 million acres will be harvested, the USDA said, up from 73.3 million estimated in September.

U.S. reserve supplies before next year's harvest will total 220 million bushels, up from 135 million forecast last month, the USDA said.

``The markets will have to deal with supplies that are much larger than anyone was expecting,'' Manternach said.

Corn Production

Corn production will total 12.2 billion bushels, up 1.1 percent from 12.072 billion projected a month ago and second only to last year's 13.1 billion-bushel harvest, the USDA said.

The department raised its yield forecast to 154 bushels an acre from 152.3 bushels estimated last month. Farmers harvested 151.1 bushels an acre last year and analysts surveyed by Bloomberg News were expecting 152.2 bushels, on average.

Unsold supplies of U.S. corn before next year's harvest will total 1.154 billion bushels, up 13 percent from 1.018 billion forecast a month ago, the department said. Analysts expected an estimate of 1.12 billion bushels, on average.

U.S. wheat reserves before the next harvest will be 4.7 percent more than forecast a month ago, as increased production more than offsets higher feed use, the USDA said.

About 601 million bushels of unsold wheat will be in storage when the current marketing year ends on May 31, nearly double the 306 million on hand at the start of this year.

Global stockpiles will total 144.4 million tons by May 31, the USDA said. That's up from last month's estimate of 139.9 million and up from 119.8 million tons at the end of last May.

``Even if equities were not down sharply, grains would be anyway, because the USDA gave us surprisingly bigger supply numbers,'' said John Roach, president of Roach Ag Marketing Ltd. in Boca Raton, Florida.

Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest U.S. crop, valued at a record $13.7 billion in 2007.

The U.S. is the world's largest grower and exporter of corn and soybeans, and it is the largest exporter of wheat.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.