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GRAINS-Corn futures fall after higher U.S. yield estimate surprises traders

* USDA raises U.S. corn yield to 168.4 bushels/acre

* Agency cuts estimate for U.S. soybean yield

* U.S. soybean ending stocks tighten from September

* USDA confirms China buys U.S. soybeans (Recasts throughout, adds USDA crop estimates and latest prices)

By Tom Polansek

CHICAGO, Oct 10 (Reuters) - U.S. corn futures dropped to their lowest prices in more than a week on Thursday after the Agriculture Department surprised traders by raising its domestic yield estimate in a monthly crop report.

Soybean futures reached their highest price in nearly three months after the report pegged U.S. yields and ending stocks below analysts' estimates.

Analysts and traders have been uncertain about supplies and the size of the crops after historic rains and flooding caused severe planting delays across the U.S. Midwest this spring.

"There's way more corn than we thought there was going to be," said Tomm Pfitzenmaier, analyst for Summit Commodity Brokerage in Iowa.

Most-active corn futures sank 3.2% to $3.81-1/2 a bushel at the Chicago Board of Trade (CBOT) by 11:55 a.m. CDT (1655 GMT). The losses were a setback from a nearly two-month high reached on Wednesday.

CBOT soybeans were up 0.8% at $9.31 a bushel and reached their highest price since July 15. CBOT wheat fell 2% to $4.90-1/4 after prices reached a two-month high Wednesday.

The USDA, in its monthly supply and demand report, pegged the U.S. corn yield at 168.4 bushels per acre, compared to 168.2 bushels in September. Analysts were expecting a cut to 167.5 bushels.

The agency reduced its soybean yield estimate to 46.9 bushels per acre from 47.9 bushels last month. Analysts were expecting 47.3 bushels.

"The soybean-corn spreading was a given after USDA cut the soybean yield by a bushel and took the corn yield up a surprising 0.2 bushel," said Terry Reilly, senior commodity analyst for Futures International.

The USDA lowered its estimate for U.S. soybean ending stocks to 460 million bushels from 640 million last month. The trend toward tighter supplies helped support soy futures, Reilly said.

The USDA, in a separate daily report for export sales, said China bought 398,000 tonnes of U.S. soybeans.

Traders are focused on China's soybean demand as Washington and Beijing seek to resolve the bruising trade war that has slowed exports of U.S. farm products including soybeans. Top U.S. and China trade negotiators were set to meet on Thursday for the first time since late July to try to find a way out of the 15-month dispute.

"If we get a trade deal, we're going to say, 'Wow we're going to run out of soybeans this year,'" said Ted Seifried, chief market strategist for Zaner Ag Hedge. (Reporting by Tom Polansek in Chicago Additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore Editing by Jane Merriman, Matthew Lewis and Tom Brown)

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