October 13, 2011

US estimates huge 2012 corn surplus

Farmers have 206 million more bushels of surplus corn on hand at the beginning of this year's harvest, as estimated by the US Department of Agriculture Wednesday (Oct 12).

That means farmers will have 866 million bushels of corn on hand at the end of next summer. That's higher than last month's forecast of 672 million bushels. The bigger surplus could bring down corn prices, which soared to record levels in June because of limited supplies.

Corn is an ingredient in everything from animal feed to cereal to soft drinks; therefore cheaper corn could ease broader food prices.

It takes about six months for higher corn prices to reach the supermarket shelves. That's because there's a long lead time between when meat companies and food processors buy their grain, and when products hit stores.

For 2011, the USDA predicts food prices will rise 3-4%. Food prices are expected to increase more slowly next year, between 2.5-3.5%, according to the USDA's estimate last month.

One reason prices will continue to rise is corn supplies remain tight, even with the larger-than-expected surplus. The 866 million bushels of corn left over at the end of next year would satisfy demand for about 25 days. That's below the 30-day supply that most investors consider healthy.

Corn prices are coming down after reaching a record of US$7.99 a bushel in early June. They traded at around US$6.05 a bushel before Wednesday's USDA report.

Expensive corn prompted farmers this spring to plant the second-largest corn crop since World War II. It appears that the bigger harvest will be enough to avoid a major food shortage this year.