September 29, 2011


UN: Corn price decline may mislead producers



UN stated that the drop in corn prices may mislead growers that world stockpiles have returned to normal, causing farmers to reduce acreage, according to a Bloomberg report.


 "We're seeing a downtrend in prices for the wrong reasons," said Abdolreza Abbassian, senior economist at the Food & Agriculture Organisation. "The medium-term response would be a shortage, so prices will rise."


Corn shed 18% from this year's high in June to yesterday's (Sep 28) close as investors sold commodities from metals to farm products on concern that the global recovery was faltering. The decline helped to ease near-record food prices, curbing inflationary pressures as governments seek to boost growth.


Abbassian's comments reflect concern the rout may hurt even commodities that face supply constraints, obscuring so called price signals that producers use to help make decisions about future output. The corn market "is not positioned" for USDA's estimate due September 30 that may show US stockpiles fell more than forecast, Morgan Stanley said.


Corn rallied to a three-year high of US$7.93 per bushel on the CBOT on June 9, buoyed by tightening supplies and increased worldwide demand, before ending at US$6.52.The December delivery contract was at US$6.48.


US stockpiles may have declined to 882 million bushels as of September 1, about 38 million bushels less than the USDA's latest estimate, Morgan Stanley analysts led by Hussein Allidina wrote in the report e-mailed today. That would be the smallest total for period since 1995, and down from 1.7 billion bushels a year ago, according to USDA data.


"The quarterly stocks report could refocus the market on tight fundamentals after two weeks of macro-driven price weakness," Morgan Stanley said in today's release. "We expect a moderately bullish report for corn."


Global corn production will trail demand for a third straight year in 2011-2012, according to a USDA forecast on September 12. World stockpiles may plunge to 117.4 million tonnes at the end of the 2011-2012 seasons, a five-year low, the USDA said.


The corn market "is not appropriately pricing in the tightness in the US corn balance," Allidina and analysts also wrote in an earlier report, issued on September 26 and that maintained a forecast of US$7.25 per bushel for this season.


"What happens is, if tomorrow, all of a sudden, we got a stimulus package, we get news of recovery, immediately the attention will go to supply," Abbassian said.


The next outlook from the USDA for worldwide supply and demand, which is due in October, may show smaller acreage in the US, cutting the nation's harvest to 12.37 billion bushels, the lowest since 2008-2009, Morgan Stanley said in the September 26 report. The US accounts for about 45% of world exports.


Investors may price in a possible smaller US harvest, sending prices to as much as US$8 per bushel, Dan Cekander, director for grain research at Newedge USA LLC, said September 20. A day later, the Federal Reserve cited "significant downside risks" to the US outlook, helping wipe out this year's gains in the Standard & Poor's GSCI Index of 24 commodities.

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