We’re a little bit late to this, but it’s interesting nonetheless for those who might not be all that glued to goings-on in the corn market.
Turns out that after a mega run-up in the price of corn, supposedly due to supply constraints, the US Department of Agriculture reevaluated the national inventory last week and discovered an additional 300m bushels of corn.
Corn future prices reacted as follows, via Bloomberg:
As the FT explained on Monday:
The price of the grain, widely used for animal feed and motor fuel, has fallen 11 per cent from a week ago, weakened by a US Department of Agriculture report showing domestic stocks were more plentiful than analysts had expected. This eased concerns that shortfalls this year would create a supply pinch in 2011. US exports make up about 60 per cent of the world’s corn trade.
So how does the USDA suddenly discover an extra 300m bushels of supply?
According to the Des Moines Register it’s all down to the amount of ‘old corn carryover’ that can be included in the USDA survey (H/T the Market Skeptics blog).
The Register explains:
Corn took its biggest one-day drop since April, falling 30 cents per bushel Friday on the Chicago Board of Trade to $4.65 for the December contract. Just a week ago corn reached a two-year high of $5.25 on worries that supplies this year would be tight.
But the USDA yesterday increased its carryover of old corn stocks by 300 million bushels to 1.7 billion and left untouched its estimated of 151 million bushels of old soybeans.
Although the reaction from traders about the unexpected carryover has been interesting to say the least. You can check out some of the comments here.
Let’s just say this film does come to mind.
Related links:
Corn Drops to Two-week Low on Rising U.S. Reserve Inventories – Bloomberg
Corn prices jump as dry US summer takes toll - FT