Stronger soybean and corn crops seen in Brazil

U.S. government forecasters eased concerns over low grain supplies Thursday, slightly increasing estimates for global supplies of corn, wheat and soybeans, while leaving projections for domestic supplies mostly unchanged.

The U.S. Department of Agriculture in its monthly crop report still forecasts tight supplies for staple crops, yet sees inventories stabilizing as South American countries begin their harvests.

While the report does not erase fears of global food shortages this year, futures markets, which have soared to more than two-year highs on supply concerns, opened lower.

"The world numbers are a bit negative across the board," said Don Roose, president of U.S. Commodities in Des Moines, Iowa.

Futures prices at the Chicago Board of Trade plunged on Thursday's open on the report, although the markets quickly trimmed the losses.

Corn for March delivery was down 1.6% to $6.84 per bushel in recent trade, while March wheat was down 1.7% to $7.19 3/4 after earlier trading down by twice that much. Soybean futures were mixed after dropping more than 2% on the open.

The biggest loser was rice, as the most-active May contract fell 3.7% or 50 cents, the daily trading limit, to $13.05 after the government hiked projected world supplies by 5%.

Agriculture companies, particularly fertilizer makers, also tumbled. Potash Corp. of Saskatchewan (POT) was down 3.5% to $52.18 a share.

The only major agriculture commodity initially gaining on the report was cotton, as futures recently traded up 0.5% at $2.054 a pound on the Intercontinental Exchange. Stocks for farm equipment manufacturers fell on Thursday's report with Deere & Co. (DE) down 2.6% at $87.19 a share on heavy volume.

The government increased the projected global, end-of-season wheat inventories by 2.3% to 181.9 million metric tons, noting better-than-expected crops in Argentina and Australia, where robust crops in western parts of the country made up for flood losses in the east.

The increase "is a bearish jab to gut of wheat market," R.J. O'Brien analyst Rich Feltes told clients, although he added that the bigger issue for the market is northern hemisphere production this year, which has yet to be determined.

U.S. wheat supplies are forecast slightly higher than a month ago, which is expected to pressure futures prices. Wheat was the first grain market to rally in 2010, thanks to a historic Russian drought. But the USDA said Thursday that Russia "appears to be meeting its wheat needs" after implementing an export ban, and that the ample Australian supplies will hurt U.S. wheat exports.

The government raised its U.S. projection for wheat supplies at the end of crop year on May 31 by 3% to 843 million bushels. It also noted that smaller markets around the world were reducing their purchases due to high prices.

Meanwhile, the USDA slightly increased its estimates for world soybean and corn supplies. Stronger-than-expected yields prompted forecasters to raise Brazilian corn production to 53 million metric tons, up 2 million, and project a new record for Brazilian soybean production. The USDA did not change corn and soybean forecasts for Argentina, a key exporter, although it did boost its wheat crop projection. It did lower estimates for Mexican corn production after a freeze damaged crops there.

With tight global supplies of corn and soybeans, buyers are now turning to Brazil and Argentina where farmers are harvesting or soon will be.

U.S. production and inventory forecasts for soybeans and corn for the current crop marketing year were left unchanged. Analysts had been projecting a slight cut to corn supplies, but the government left its demand estimates, including for ethanol production and exports, unchanged.

Still, the U.S. corn supply projection remains the lowest in 15 years, and analysts say prices must remain high to ensure farmers plant enough corn this year to start rebuilding supplies. Corn supplies have been drawn down by strong demand from the ethanol industry and as well as Mexico, which has increased exports due to the crop freeze.

While some traders had been bracing for any potential surprises in Thursday's report, many said that government reports at the end of the month on plantings for the new crop and supplies are more likely to be pivotal.

As for so-called soft commodities, futures for frozen orange juice concentrate sold off on the USDA report, as forecasters raised their outlook for the Florida crop. The agency increased its estimate for the current crop by 3% to 142 million 90-lb. boxes. The benchmark frozen orange juice concentrate contract recently traded down 2.6% to $1.70 a pound on the Intercontinental Exchange.

Federal forecasters lowered expected cotton production for India and China, trimming total global output by 0.3% to 114.95 million bales. According to the report, U.S. cotton farmers are receiving 20 cents more a pound for the cotton they'll soon be planting compared to last year's crop, and nearly double what they were paid in the 2008/09 season.

(Source: http://www.agriculture.com/news/crops/stronger-soybe-cn-crops-seen-in-brazil_2-ar15289)