January 11, 2013

US corn supplies are declining at their fastest pace in 17 years due to the country's drought conditions.

Inventories on December 1 were 15% lower than a year earlier at 8.22 billion bushels, the smallest post-harvest stockpile since 2003, according to the average of 26 analyst estimates compiled by Bloomberg. Goldman Sachs, Morgan Stanley and Macquarie Group expect prices to rebound at least 17% to US$8.14 a bushel in 2013.

While futures surged to a record US$8.49 in August as the drought spread, they tumbled 18% as US exports slowed and buyers sought cheaper supply from Brazil and Ukraine. Prices will rebound as the government overestimated the harvest and may lower the figure when it reports, the analysts said. The USDA already expects global stockpiles on October 1 to be the smallest relative to consumption since 1974.

About 55% of the nine-state Midwest region had moderate to exceptional drought on January 1, compared with 13% a year earlier, according to the US Drought Monitor.

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Corn averaged a record $6.89 in 2012 and that may spur farmers to plant more this year, easing concern about supply. U.S. production will expand to 14.83 billion bushels in 2013, 38 percent more than in the previous season.