Feedgrain outlook: US downgrades forecast

Jon Condon, 16/06/2011


Corn prices in North America are likely to rise significantly as US summer crop forecasts are lowered, based on production challenges on a range of fronts, and exceptionally tight corn supplies.

US Cattlefax reports that the USDA last week lowered its projection for the domestic corn crop by 2.3 percent to 13.2 billion bushels and cut its forecast for stock inventory left over from this year’s crop before the 2012 harvest by 23pc to 695 million bushels.

That leaves new crop ending stocks at 5.2pc, an alarmingly low figure which is expected to lend support to December corn futures, analysts say. The record tight stocks level is likely to keep December US corn futures near US$7 a bushel, and there could be times where the market could be closer to the all-time highs for December corn just shy of $8 a bushel, Cattlefax says.

July corn futures jumped 3.8pc to US$7.95 a bushel on the Chicago Board of Trade following last week’s crop production report. The price has more than doubled in the past year and touched US$7.99 last week, the highest since June 2008.

Daily Livestock Report commentator Len Steiner said normally the USDA did not change its estimates of the acres planted in its June report, however there had been enough information on planting delays and flood damage across US growing areas to adjust supply forecasts for the upcoming corn crop.

The most recent estimate puts planted corn area at 90.7 million acres, 1.5m less than the May estimate. The revision in planted and harvested acres removed 305 million bushels from the expected US corn output from the upcoming harvest.

“In previous years, such a change would be notable. But given that we are starting the year with such low supplies in the pipeline, this revision in output is seen as potentially explosive for new corn crop prices,” Mr Steiner said.

While the current revisions provided a jolt to the market and caused corn futures to hit record highs last week, he said the trade would have to wait for the June corn acreage report to get a better impression of the true size of the corn crop US farmers put into the ground this spring.

Some major corn production areas remain behind in plantings and some areas may not be planted at all. Overall, the latest crop progress report showed just 83pc of the crop acres had been planted by the end of May, compared to 97pc a year ago.

While US corn producers in northern states are dealing with flooding and excessive rainfall, producers in the south are coping with one of the worst droughts in the last seventy years. Many areas in Texas are experiencing exceptional drought conditions which will impact corn and wheat supplies. USDA’s first crop condition report showed that more than 30pc of the corn crop in Texas was rated as poor/very poor.

On the demand front, USDA lowered its feed use estimates by 100 million bushels, reflecting profitability issues in livestock and poultry industries and expectations for lower US meat production in late in 2011 and 2012. Corn exports and ethanol demand were left unchanged.

Higher energy prices and tight world corn supplies remain long term bullish for corn prices and will further pressure already razor-thin pipeline supplies, Mr Steiner said.

World corn stocks currently sat at 111.89 million tonnes, now 13pc less than May estimate and 22pc lower than in 2009/10.

A small illustration of the supply/demand pressure on US grain supply came in a report issued last week by US Grain Council over its growing export trade to Korea in dried distillers grain (DDGS). Distillers dried grains are a by-product of the corn-based ethanol industry, used as an intensively-fed stockfeed.

Use of US-produced DDGS in Korea has grown from 4000 tonnes in 2004 to 503,000t in 2010. The US Grains Council believes Korea will ultimately utilise more than 2 million tonnes of US-produced DDGS each year as stockfeed, at the currently accepted inclusion rate.


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