July 12, 2011 / 12:10 PM / 8 years ago

Wheat, corn drop on supply prospects, euro zone woes

SINGAPORE/AMSTERDAM (Reuters) - U.S. wheat futures slid 3 percent on Tuesday, while corn fell 2.5 percent, losing more ground on prospects of higher supplies and fears that the euro zone debt crisis could spread to Italy and Spain.

The selloff after last week’s gains comes ahead of the U.S. Department of Agriculture’s monthly supply and demand report at 1230 GMT, which the market expects will show more comfortable corn stocks in the U.S. and higher global wheat supplies.

“Grains will be weaker across the board because of the U.S. dollar strength and euro zone crisis,” said Adam Davis, a senior commodity analyst at Melbourne-based funds Merricks Capital.

“We are expecting that wheat stocks will be raised and on top of that Russia has 5 to 6 million tonnes more wheat than previously expected.”

Chicago Board of Trade new-crop December corn fell 2.50 percent to $6.17 a bushel by during the morning, while September wheat lost 3 percent to $6.20 a bushel. November soy contract fell 0.6 percent to $13.38- a bushel, tracking losses in wheat and corn.

But the trend is not likely to last long, analysts say.

“We maintain our view that prices will remain historically high and that price risk is skewed to the upside,” Macquarie Securities said in its daily report.

“We see little-to-no recovery in global grain and oilseed stocks in the 11/12 season, as demand growth should keep pace with any recovery in production.”

A Reuters Poll of analysts showed corn ending stocks on August 31 would total 905 million bushels, up from 730 million in early June, but still the lowest in 15 years.

The upward revision will also help bolster ending stocks in the 2011/12 marketing year beginning September 1 by about 300 million bushels, the poll showed.

Wheat has come under pressure after analyst SovEcon raised its harvest outlook for the number 4 grower, Russia, because favorable rains since late June have helped crops and raised the country’s competitive profile versus U.S. wheat.

SovEcon raised its forecast for Russia’s grain production in 2011 to 87-92 million tonnes, from 82-86 million tonnes due to improved weather conditions in the European part of the country and in the Urals.

A severe drought kept Russian wheat out of the world market last year.

The U.S. Midwest Corn Belt, which is also the key soybean-growing region, should see much-needed rains off and on through Friday, said Mike Palmerino, agricultural meteorologist with Telvent DTN.

U.S. corn and soybean ratings held steady despite higher temperatures in key growing regions, USDA said after the market closed on Monday. The corn crop was rated 69 percent good to excellent. A Reuters survey of eight analysts had forecast this week’s rating at 70 percent good to excellent.

Mounting euro zone debt concerns, and fears the crisis could spread to Italy and Spain weighed on the commodity markets, including oil, cotton and grains.

Asian equities also suffered sharp losses, while the euro remained under pressure on escalating worries that the threat of contagion from the Greek debt crisis could lead to more countries requiring financial aid.

European wheat futures tracked U.S. prices lower, with benchmark November milling wheat down 2.75 percent at 185.50 euros a tonne.

In a bid to stop financial contagion engulfing Italy and Spain, euro zone finance ministers promised cheaper loans, longer maturities and a more flexible rescue fund on Monday.

The dollar index .DXY, which measures the strength of the greenback against a basket of currencies, rose 0.5 percent. A stronger dollar makes U.S. commodities uncompetitive in the international market.

Editing by Keiron Henderson

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