February 9, 2009

Weak demand is expected to lead to another increase in projected 2008-09 US corn ending stocks in this week's government report, analysts said.

 

The US Department of Agriculture will release updated supply and demand tables Tuesday at 8:30 a.m. EST. Analysts said the trade will be paying at least as much attention to the government's estimates for world supply and demand, given the drought that has plagued key corn-producers Argentina and Brazil.

 

The average projected US carryout is 1.838 billion bushels, which would be up from the USDA's estimate of 1.790 billion bushels last month, and higher than the 2007-08 carryout of 1.624 billion.

 

The estimates from the 14 analysts surveyed by Dow Jones Newswires ranged from 1.740 billion to 1.940 billion.

 

Some analysts say the USDA is likely to adjust its export demand projection downward despite a rebound in weekly export sales recently. Sales have topped 1 million metric tonnes three straight weeks.

 

"Even though we've had three weeks of good sales, we're still well behind where we should be," said Shawn McCambridge, senior grains analyst for Prudential Bache.

 

He expects only modest changes to the export and ethanol demand, and projects a carryout estimate of 1.840.

 

Ethanol's struggles are also likely to be reflected in the report, as plants have continued to close amid poor margins, analysts said. Don Roose, president of US Commodities in Des Moines, reduced his ethanol demand by 50 million bushels.

 

"It's still eroding here in this negative price environment," Roose said.

 

He also trimmed projected export demand by 25 million bushels, and estimates carryout at 1.865 billion bushels.

 

Others project a larger cut in demand that will push carryout close to 2 billion bushels. Brian Hoops, president of Midwest Market Solutions, said a cut in ethanol demand of 130 million bushels is the key reason for his carryout estimate of 1.925 billion bushels. He also said export demand could be cut by 25 million to 50 million bushels.

 

Hoops added that "feed usage probably could be lowered in future reports." Risk Management Commodities, which projected a carryout of 1.919 billion, estimates that livestock demand will be cut by 75 million bushels in Tuesday's report.

 

Demand has suffered in recent months due to the eroding economy, causing stocks to grow, analysts say. The USDA's January carryout estimate of 1.790 billion bushels was up from 1.474 the previous month.

 

Weather in South America has been a key focus of the market in recent weeks, and the trade will look to the USDA's Tuesday report for new estimates on the crops there.

 

"The world numbers we think are more interesting," Roose said.

 

He said they sliced soy and corn production across the board in Argentina and Brazil due to the dry weather they've suffered this summer. Roose estimates Brazil's corn crop at 50 million metric tonnes, down from the USDA's January estimate of 51.5 million, and puts the Argentina crop at 16 million, down from 16.5 million.

 

Although weather has stabilized and Argentina has seen some rain, the projected steep cuts in South American production are still an issue, Roose said.

 

"I think what it does is it tells you before you can take a huge leg to the downside, we need to get a better gauge of how the crop finishes out there," he said.

 

Citigroup analyst Terry Reilly projects a potentially larger reduction of 1.5 million to 2 million tonnes for Brazilian corn and 1 million to 1.5 million tonnes for the Argentina crop.

 

McCambridge said the Argentina corn crop could drop 2 million to 3 million tonnes.