October 1, 2012

 

US corn, wheat supply far lesser than anticipated

 

 

As it indicates tight domestic and global supplies for the months ahead and sent commodity markets surging, the US corn and wheat stockpiles dropped more than grain traders expected.

 

Corn futures prices rose by nearly 4% and wheat by 2.5% after the Agriculture Department reported corn stocks were below one billion bushels for the first time in eight years. Corn began the day at a three-month low.

 

Corn, wheat and soy supplies are forecast to tighten during this marketing year, due to crop damage from the worst US drought in half a century. That is expected to keep commodity prices at record levels and buoy prices at the grocery store.

 

It's the third year in a row for the USDA's September inventory report to surprise traders. Many analysts were bracing for a swing to the upside because they forecast an early harvest could swell corn supplies, but USDA's corn figure was 11% smaller than expected.

 

The report showed corn prices that soared to US$8 per bushel earlier this year failed to ration corn demand for export, livestock feed, ethanol production and food processors.

 

USDA's survey of farmers and warehouses showed 988 million bushels of corn on hand on September 1, the start of the corn marketing year and the traditional low point for supplies. Wheat stocks of 2.1 billion bushels were 7% smaller than traders expected.

 

"A sub-one billion number is enough to get the market nervous," said Sterling Smith, futures specialist for Citigroup in Chicago, referring to corn. Smith said the surge in corn prices pulled up wheat and soy prices too.

 

The corn stockpile was smaller than expected despite a downturn in corn consumption. USDA said corn "disappearance" for June-August was 15% smaller than the same period a year earlier.

 

Don Roose, president of US Commodities, said corn consumption for June-August was larger than expected, "so we are going to hear talk that we are going to have to do a better job of rationing in the feed sector. That's not easy to do."

 

Governors of seven US states have petitioned the Obama administration to relax a federal mandate to use corn-based ethanol in gasoline, saying high corn prices were punishing beef, pork, poultry and dairy farmers. USDA data on grain supplies could play a part in the decision, possible in November.

 

Meat production is projected to fall this year and again in 2013 because of high grain prices.

 

The soy stockpile, at 169 million bushels, was 29% larger than expected. Disappearance for June-August was up 23% from the same period in 2011, said USDA.

 

Wheat growers harvested 2.269 billion bushels of the food grain this year, said USDA in a next-to-final estimate of the crop.