December 4, 2022

Corn Prices Fall Sharply After a Larger-Than-Expected Estimate of Crop

The nation’s farmers have planted the second-largest corn crop in nearly seven decades, the Agriculture Department reported Thursday, setting off a sharp decline in prices.

The size of this year’s corn crop will be 92.3 million acres, the department said, 9 percent more than the average annual corn crop over the last decade. The only crop bigger in the last 67 years was planted in 2007.

Many analysts had worried that wet weather this spring would cut the number of corn acres. But high prices encouraged farmers to use more acres for corn, and less for soybeans and wheat.

A larger crop estimate drove corn futures 30 cents lower, to nearly $6.21 per bushel. That is the maximum price change allowed by futures exchanges. Corn rose to a high of $7.99 per bushel in June.

More expensive grain has led to food price increases this year. That could ultimately make everything from beef to cereal to soft drinks more expensive at the supermarket. For all of 2011, the department predicts food prices will rise 3 to 4 percent.

A huge harvest in August could ultimately slow food inflation. It typically takes six months for changes in commodity prices to affect retail food prices in the United States. Analysts said consumers could see some relief at the supermarket by early 2012.

“All of us who perceived tighter supplies up to this point, all of us were proven wrong today,” said Jason Ward, an analyst with Northstar Commodity in Minneapolis.

Industry traders had expected 90.8 million acres of corn to be planted. Knowing that far more corn is in the pipeline will likely pull grain prices down significantly this summer, Mr. Ward said.

Farmers chose to plant corn at the expense of this year’s soybean crop. They planted 75.2 million acres of soybeans, about 3 percent less than last year.

Farmers have a limited supply of good farmland and usually trade one crop for another on their acreage.

“It seemed to me there was $100 to $150 per acre more money in the corn than there was in the beans,” said Tom Kreutzer, who planted 150 acres of corn on his farm near Wakeeney, Kan. “That’s the kind of math that a lot of guys were using.”

A separate report from the Agriculture Department on Thursday estimated the United States had 3.67 billion bushels of corn in storage. Most analysts were expecting a reserve of 3.3 billion bushels, said John Sanow, an analyst with Telvent in Omaha. If the reserve estimate is accurate, it means backup supplies could be higher this year and next. That would ease fears of a shortage.

Still, in August corn reserves are expected to hit their lowest level since 1995, according to the most recent department estimate. Global demand from ethanol producers and livestock owners has risen faster than farmers’ production over the last decade.

Higher corn prices make soybeans and wheat more expensive because farmers plant less of them.

Raised expectations for this fall’s corn crop also helped lower soybean prices in trading on Thursday. Soybeans fell 29 cents to $12.94 a bushel.

A bigger crop doesn’t guarantee lower food prices. A drought or flood could limit the size of the harvested crop.

Mr. Ward said many of the acres planted this spring were on marginal land that would not yield much grain.

Corn is a key ingredient in feed for poultry and livestock, and a staple in many processed foods. When corn prices rise, food processors and grocers pass along the higher costs to the consumer.

Surging corn and soybean prices are showing up at the grocery store this year.

In May, a sirloin steak cost about 7 percent more than last year, according to the most recent available Bureau of Labor Statistics figures. The price of pork chops jumped 9 percent. The price of spaghetti and macaroni noodles, which often contain soybean meal and corn syrup, jumped 13 percent.

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Response to Volatility in Silver Takes Hold

They didn’t realize it, but they were about to take the first step toward popping a bubble in global commodities prices.

Worried about the speculative run-up and the increased volatility of the silver market, the officials concluded that it was time to raise the amount of money that buyers and sellers had to put down as collateral to guarantee their trades. The first increase in so-called margin requirements took hold the next day, effectively making it more expensive for speculators and other kinds of traders to play in the market.

But the price kept going up, reaching nearly $50 a troy ounce on April 28. Over the next week or so, the exchange decided to raise collateral requirements even higher, in four more steps that would kick in every couple of days.

Silver prices finally halted their ascent — and went into free fall. Last Thursday, the rout spread to a wide range of commodities, including coffee, cotton and oil, as investors looked at silver’s plunge, as well as global interest rate trends and other economic news, and concluded that the yearlong boom in commodities prices was ending.

“The tremors felt in silver started reverberating throughout the entire commodity patch,” said Richard J. Feltes, vice president of research of R. J. O’Brien, a large commodities broker. Silver ended the week down 27 percent. Crude oil was down 15 percent, and most other commodities also fell significantly.

The futures exchanges have been struggling for months to cope with the challenges posed by rapid price increases and head-snapping volatility in many commodities. Those who rely on the commodity exchanges to hedge risks in their businesses, like farmers, food makers and mining companies, have complained that increased betting by speculators has made it much more difficult for them to use the markets.

Besides changing margin requirements, exchanges are taking other steps in reaction to the volatility. The InterContinental Exchange, a rival to the CME Group, is using computer programs to make the markets more efficient by better matching buy and sell orders in sugar and other commodities. It is also looking at strengthening various types of circuit breakers to halt or slow trading during volatile periods.

Some players in the markets say the exchanges use margin requirements to actively push down prices. But the exchanges say they are not price-setting tools.

Kimberly S. Taylor, president of CME Clearing, which processes transactions in silver futures and other commodities, said the recent margin changes in silver were intended to reduce risk for investors and the exchange.

The market’s measure of volatility in silver had been rising precipitously. “That is a very good indication that losses they will suffer day-to-day tomorrow are higher than losses they suffered in the past,” Ms. Taylor said.

As prices for commodities go up, exchanges routinely increase the margin requirements, which function as a deposit on contracts bought and sold. When prices move up or down quickly, it increases the possibility that some traders will have to put up more collateral unexpectedly. If they do not have the money, they have to sell their positions.

Silver, which is traded on the CME’s Comex unit in New York, is not the only market where margin requirements were increased recently. CME also raised margin requirements on corn, crude oil, ethanol and other products. The InterContinental Exchange increased cocoa margins in February, March and April, and cotton margins went up twice in February. Margins on the Brent crude oil contract, the benchmark oil traded in London, have increased eight times this year.

In sugar, however, where prices have declined for much of this year after last year’s sharp rise, margins were lowered in March.

CME says it makes margin changes regularly. Silver margins were raised five times and lowered once in 2010, for example. Corn margins were raised 36 percent in one day last October.

Edward Wyatt and Julie Creswell contributed reporting.

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