January 24, 2011

US corn prices must rise above 2008 highs

US corn prices need to rise above their 2008 peaks in Q2 of 2011 as supply struggles to keep up with record demand driven by Asian feed and US ethanol, Macquarie said Friday (Jan 21).

Amid a year of rising food costs as tightening global inventories herald the return of what the bank calls agflation, Macquarie said it expects corn to lead the charge in world grain markets.

Macquarie expects corn prices will need to surpass the 2008 highs in order to spark demand rationing on a scale unprecedented since the 1995/96 season.

US corn prices are predicted to top US$7.50 a bushel in second quarter 2011-the peak reached two years ago-and remain close to US$6 a bushel through 2012 as farmers struggle to rebuild the country's stocks.

"The combination of strong feed demand growth in Asia and record US ethanol production is outstripping the world's current corn production capacity," Macquarie said.

It forecast US stocks could even undercut the USDA's estimate, already the second-lowest on record, possibly below 700 million bushels this season.

The prediction comes as the International Grains Council Thursday (Jan 20) lowered its estimate for world corn production to 809 million tonnes, including three million tonnes falls in output from Argentina and the US.

"Due mainly to a rise in US ethanol output," its forecast for global industrial use is lifted by three million tonnes to 231 million tonnes, leaving US ending stocks of less than half of last season at 19 million tonnes.

"There are significant risks for dramatic corn price increases going forward," said Macquarie.