The government unexpectedly increased its projection for U.S. corn supplies prior to the next harvest and said global production of the grain probably will reach an all-time high the coming year amid stronger crops in Canada, China and Europe.
Domestic corn stockpiles at the end of the 2011-12 marketing year in August are expected to total 848 million bushels, the U.S. Department of Agriculture said in its monthly Supply and Demand update Dec. 9.
Estimated supplies are up 0.6 percent from 843 million bushels in a USDA report last month and contrasted with expectations for a decline of about 1.4 percent, to 831 million bushels, based on the average estimate in a survey of 19 analysts conducted by Thomson Reuters. Supplies will be slightly more than expected because of slightly lower food, seed and industrial use, the USDA said.
The USDA report probably put more downward pressure on corn futures that have already fallen more than 25 percent from an all-time high near $8 in June. In trading Dec. 9, CME Group corn futures for March delivery fell 6 cents to $5.94 1/4 a bushel. Earlier this week, corn futures touched the lowest level in a year, based on the closest-to-expiration contract.
Corn futures likely established a longer-term peak with the record highs reached in June, and may drop near $5.50 over the winter, analysts said.
“Unless we see weather sharply reduce supplies, it will be hard to replicate the 2011 highs,” said Mike Zuzolo, “Keep in mind, the global austerity is likely to slow (emerging market) growth, and that in turn is likely to keep the dollar firm. And if that occurs, that suggests global end-users won’t have as much buying power as they were used-to having this past year.
Along with the outlook for slightly higher U.S. supplies, the USDA also cut its corn price forecast and boosted estimated global corn production in 2011-12 by 1 percent, to a record 867.5 million metric tons, or 34.2 billion bushels. That partly reflects bigger production in China, which is expected to harvest 191.8 million metric tons, up 4 percent from a previous estimate.
“Weather was generally favorable for this year’s crop,” the USDA said, referring to corn-producing regions outside the U.S. In China, “record yields were reported despite summer conditions in the northeast growing areas that were somewhat warmer and drier than in 2008-09.”
Farm-level corn prices are expected to average $5.90 to $6.90 a bushel in 2011-12, down from $6.20 to $7.20 in last month’s Supply and Demand report, but still up from $5.18 in 2010-11.
“The reduction reflects the on-going price weakness since September, along with confirmation that significant quantities of corn were sold before harvest at lower prices,” University of Illinois economist Darrel Good said in a Dec. 9 report.
“Based on average prices received in September and October and current price levels, the average price received may well be in the lower half of the projected range,” he said.
So-called ending stocks in the U.S., a closely-followed gauge of the supply cushion, would be still be down 282 million bushels, or 25 percent, from the 1.13 billion bushels on hand at the close of 2010-11 and would also be the lowest in 16 years.