Reuters Jun 9, 2011 – 1:40 PM ET
Global corn supplies will be much tighter next year than predicted a month ago, the U.S. government said on Thursday as it unexpectedly cut its estimate for the U.S. crop and forecast a jump in demand from China.
Chicago corn futures briefly spiked to an all-time high after the Agriculture Department said rains and floods prevented farmers from planting all the corn they had intended, cutting the likely size of the crop by 2 percent, an unusual revision just weeks ahead of its annual June survey.
That revision, in a monthly report that otherwise made few changes to the domestic crop view, reduced USDA’s forecast for U.S. ending stockpile as of September 2012 by 205 million bushels from the May report. The so-called carry-over stocks would edge near their tightest levels since the mid-1930s for a second year running.
Analysts had expected USDA to predict a smaller 129 million-bushel reduction in end stocks. By the end of next summer, the United States — which grows 40 percent of the world’s corn, more than a third of it used to make ethanol — would have less than a three-week supply on hand. The stocks-to-use ratio, a gauge of supplies, would be 5.2 percent. The lowest in modern times was 5 percent in 1995/96.
The global outlook grew even tighter due to a forecast 13 percent surge in Chinese consumption over this year and next, much more than earlier forecast. China will draw down its large inventories to meet the higher demand, the USDA said, cutting its estimate of China’s domestic stocks by 12 million tonnes. Corn is needed for livestock feed and to make industrial products like starch.
“What has impact on the world market is the U.S. drop” in production, projected for 5 million tonnes, said USDA analyst Jerry Norton. China was unlikely to import corn and, with a preference for large supplies, would not sell corn either.
Wheat, rice and feed (coarse) grains stockpiles are forecast to fall in the coming year at a time when rising crop prices are fueling inflation around the globe, and threatening to revive fears over world food security.
Although the USDA provided some relief on the outlook for wheat — with U.S. stockpiles expected to rise over the coming year by more than traders had anticipated — traders focused on corn, which has led price gains for most of the past year as relentless feed, fuel and food demand strains supply.
Chicago corn futures shot to a record high of $7.93 a bushel at the Chicago Board of Trade on Thursday. Prices later pared gains, but are still up 130 percent from a year ago. Wheat futures fell, and are down 15 percent from their peak in February and almost half their 2008 all-time high.
The USDA said corn plantings would fall 1.5 million acres below the 92.2 million acres planned by growers as heavy rainfall delayed sowing. The harvested area will drop even more sharply, by 2.2 percent, due to losses from floods along the Missouri River and the lower Ohio and Mississippi rivers.
“Planting delays through early June in the eastern Corn Belt and northern Plains are expected to reduce planted area, more than offsetting likely gains in the western Corn Belt and central Plains where planting was ahead of normal by mid-May,” said USDA.
While traders had already factored in some reduction in what was initially forecast to have been the second-highest corn plantings since 1944, it is rare for the USDA to adjust corn area early in the growing season.
The decision stands out all the more because USDA will report on June 30 on its annual survey crop planting, when it contacts 80,000 growers as well as making field surveys.
Besides plaguing the eastern Corn Belt, rains and floods have slashed the rice crop by 5.5 percent since May, USDA said. Drought in the Southwest would reduce the cotton crop by 1 million bales, or nearly 6 percent, to 17 million bales, and the rice crop, at 199.5 million hundredweight, would be the smallest in four years.
While USDA reduced its estimate of corn planting, it did not increase plantings for crops considered likely alternatives, such as soybeans. In the last couple of weeks, agricultural economists have debated if farmers could make more money by filing a prevented planting claim with crop insurers, which would mean leaving fields fallow, than plant a fall-back crop with a lower yield.
“USDA must feel comfortable we are going to lose acres, based on satellite (imagery),” said Jack Scoville, analyst for The Price Group. “We know we’re going to lose the acres; it just depends how much. They didn’t put them in beans.”
Joe Glauber, USDA chief economist, said the soybean planting season was still open.
USDA estimated the winter wheat crop at 1.45 billion bushels, up 2 percent from May. Traders expected a 2 percent drop. “Improved weather conditions during the past month in the upper Great Plains resulted in higher forecasted yields,” said USDA.
© Thomson Reuters 2011
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