June 27, 2012
US corn inventory may drop least in three years
As demand declined due to depressed ethanol margins and stiff export competition, US corn stocks likely shrank by the fewest bushels in three years during the three months to June, a Reuters poll found.
Inventories probably fell to 3.174 billion bushels as of June 1, nearly a half billion bushels, or 13.5%, less than a year ago, according to an average estimate of 15 analysts. That would put inventories at their lowest for June 1 since 2004, just as prices have surged anew on fears that the new spring crop will be damaged by weather.
Stocks likely declined by just over 2.8 million bushels during the three months, down 47% from March 1, the fastest decline since 1996. But it is also the smallest overall decline in absolute volume (number of bushels) in three years.
"With the slow quarter for corn exports and with some ethanol plants shutting down, they should show a decline in demand there, but USDA has surprised us before," said Shawn McCambridge, analyst for Jefferies Bache.
The USDA releases its quarterly grain stocks report on Friday (June 22). The decline in ethanol output may be more pronounced in the current period, but the agency may still adjust its corn ending stocks, currently forecast to drop to a 16-year low by August 31, the end of the 2011-12 marketing year.
A crop shortfall last year and recent strong demand have slashed corn stocks and boosted prices. Those factors led US farmers this year to plant the largest area to corn since the late 1930s.
USDA in the past has surprised the market by either raising or lowering its official estimate of corn supplies but analysts are not expecting a surprise on Friday as they are cautiously optimistic that usage and production data have fully been incorporated in USDA's data bank.
"I'm expecting USDA to show a more reasonable stocks number after a series of surprises, so that's a good thing," said Rich Nelson, director of research for Allendale Inc.
In its previous June supply and demand report the USDA forecast US corn ending stocks at 851 million bushels, surprising analysts who had expected a lower forecast based on last year's crop shortfall and increased use for feed as corn prices lagged soaring feed wheat prices.
"We think this report could mean USDA lowers the ending corn stocks to 776 million bushels," said Nelson.
USDA has forecast corn for feed use this year at 4.550 billion bushels, down from 4.793 billion last year but analysts expect a rebound in the feeding number.
"They may go up a little on feed usage," he said.
Expensive corn and falling gasoline prices have cut into profit margins at ethanol plants, thus lowering corn usage, while lower-priced corn from South America has been trimming weekly export sales of US corn.
"They could trim exports too but I'm not sure they'll do that in this report," Nelson said.
China is interested in buying more corn from Argentina, the world's second-biggest corn supplier, a senior Argentine Agriculture Ministry official told Reuters on Monday (June 25).
Country Hedging's research director Tim Emslie raised corn feed use by about 200 million bushels above the third quarter last year. Emslie lowered his estimate of corn usage for ethanol to 1.268 billion bushels. That would be the first quarter-to-quarter slowdown in corn usage for ethanol since the December 2008-February 2009 quarter when the US was in a recession.
USDA may not reflect the slowdown in this report but will need to do so in future reports, according to Emslie.
"Exports slowed during the (crop year's) third quarter and are estimated at 391 million bushels, which would be the lowest for the third quarter since 1997-98," Emslie said.
Analysts said there should be no big surprises in USDA's quarterly stocks numbers for wheat or soy with the supply of each at a comfortable level. The average estimate for wheat stocks on June 1 was 723 million bushels, down 16% from a year ago and soy stocks were pegged at an average 635 million, up 2.6% from a year ago.
