July 13, 2011

 

USDA raises corn production forecast in anticipation of China's demand

 

 

US federal forecasters quadrupled their outlook for corn exports to China, while raising projections for the upcoming US harvest, as farmers continue fighting to keep up with global demand.

 

The latest USDA monthly crop report released Tuesday (Jul 12) did not whipsaw crop markets, which have seen sharp swings on recent government projections.

 

Instead, the increase in projected corn supplies and export demand was largely anticipated, while wheat and soy projections were generally in line with expectations. The biggest price move came in cotton futures after the USDA slashed its export forecast.

 

Forecasters raised their estimate for corn exports by 100 million bushels to 1.9 billion bushels, reflecting increased demand from China. The Asian nation is now forecast to import two million tonnes, or around 92 million bushels, in the 2011-12 marketing year, up from last month's prediction of just 500,000 tonnes. The USDA expects China to import 1.5 million tonnes in the current crop year, which ends August 31.

 

"We think (China) ultimately needs more corn than this. I think the USDA is basically saying that based on (the corn) we know is going to China, this is what we can go with," said Alan Brugler, president of Brugler Marketing & Management, a brokerage in Nebraska.

 

The USDA tends to be conservative with its export forecasts, often adjusting them in reaction to global developments instead of in anticipation of them. Analysts said the estimate for China's corn imports of two million tonnes seemed low considering recent sales. Prior to the report, Jefferies Bache had estimated imports would rise at 3.5 million to 4.5 million tonnes.

 

China last week bought 540,000 tonnes of US corn for delivery after August, and traders believe additional purchases were recently made. The USDA, in a separate report Tuesday, said private exporters struck deals to sell 233,000 tonnes of corn for delivery to unknown destinations, raising speculation of further Chinese buying.

 

The USDA also raised its outlook for domestic demand by 145 million bushels, or around 3.7 million tonnes, from a month ago, on increased consumption by makers of corn-based ethanol. The ethanol industry is now expected to consume 5.15 billion bushels of corn in the 2011-12 crop year, which begins September 1.

 

The USDA raised projections for the upcoming harvest and existing supplies, following reports on June 30 that showed US plantings and inventories at higher-than-anticipated levels.

 

"They took all the wind out of our sales on June 30. Today is mostly window dressing," said Jim Gerlach, president of A/C Trading, a brokerage in Indiana.

 

For the fall harvest, forecasters raised their corn output projections by 270 million bushels from last month to 13.47 billion bushels, aligning the estimate with the increased number of acres seen planted. The government pegged supplies as of August 31 at 870 million bushels, up from a June estimate of 695 million. Still, estimated supplies came in below analyst expectations of one billion bushels.

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