Daily Independent (Ashland, KY)

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January 9, 2014

Corn pile biggest since 1994 as crop overwhelms use

CHICAGO — Stockpiles of corn in the United States, the world's top grower, are rising at the fastest pace in 19 years as a record crop overwhelms increased demand for the grain used to make livestock feed and ethanol.

Inventories on Dec. 1, the first tally since the harvest was complete, probably totaled 10.764 billion bushels (273.4 million metric tons), 34 percent more than a year earlier, according to the average of 24 analyst estimates in a Bloomberg survey. The biggest gain for that date since 1994 signals ample supplies may extend the slump in March futures by 10 percent to $3.75 a bushel, according to Newedge USA's Dan Cekander.

Reserves are recovering after a drought in 2012 sent prices to a record, sparking a surge in output from the U.S. to Brazil and Ukraine. Farmers probably harvested more corn than the government forecast last month, expanding a global glut, separate surveys showed. Corn futures tumbled 40 percent last year, leading a slump in commodity prices that helped send global food costs down 14 percent from an all-time high in 2011.

"We have moved away from a supply deficit after the 2012 U.S. drought to one of surplus corn supplies," said Bill Tierney, the chief economist for AgResource Co. in Chicago. "It will take two or more years for demand to catch up to more- abundant inventories."

Corn futures that reached a record $8.49 in 2012 tumbled last year by the most on record going back to 1960 and more than any of the 23 other commodities tracked by the Standard & Poor's GSCI Spot Index, which slid 2.2 percent. The MSCI All-Country World Index of equities advanced 20 percent in 2013, while the Bloomberg U.S. Treasury index slid 3.4 percent.

Agricultural prices are declining as world production of corn, soybeans and wheat surged to the highest ever. The S&P GSCI Agriculture Index of eight crops tumbled 22 percent last year, the most since 1981. Last month, Deutsche Bank joined JPMorgan Chase and Morgan Stanley in cutting back on commodity trading after investors pulled a record $36.3 billion from funds linked to raw materials over the previous year.

The 2013 U.S. corn crop probably totaled 14.06 billion bushels, a survey of 30 analysts showed, up from a December estimate by the U.S. Department of Agriculture of 13.989 billion and 30 percent more than in 2012. Chris Gadd, an analyst Macquarie Group in London, said yesterday that the total probably reached 14.255 billion, up 32 percent from 2012, mostly because of better yields and a higher percentage of harvested acres.

The global surplus before this year's harvest on Oct. 1 will total 163.08 million tons, up from a government forecast of 162.46 million, a survey of 15 analysts showed. The USDA will update its estimates in Washington tomorrow at noon.

Low prices may help spur global demand, which is forecast to increase for an 18th straight year to a record 936.73 million tons, up 44 percent from a decade ago, USDA data show. Rising incomes in emerging markets are boosting meat buying and increasing the use of corn to feed cattle, hogs and poultry.

Based on current estimates of U.S. production in 2013 and the Dec. 1 inventories, domestic corn usage in the first quarter would be about 4.13 billion bushels, the most ever. Ethanol demand is forecast to rebound 6.5 percent this year to 4.95 billion bushels, and feed use will surge 20 percent to 5.2 billion bushels, USDA data show.

China, the world's second-largest grower, will more than double imports to a record 7 million tons as it expands stockpiles with cheaper grain, the USDA said. As of Dec. 26, China bought 5.18 million tons of U.S. corn for delivery before Aug. 31, more than double a year earlier, government data show.

Prices may rebound to $5.25 this year, from $4.16 Thursday, Byron Wien, the vice chairman at Blackstone Advisory Partners in New York, said in a report on Jan. 6.

Hedge funds and other large speculators have been betting on a drop in prices since July, holding a net-short position of 94,812 corn futures and options as of Dec. 31, U.S. Commodity Futures Trading Commission data show.

China may not import as much as the USDA forecasts, after the Asian country rejected 601,000 tons of U.S. corn last month that contained an unapproved genetically modified variety, said Cekander, Newedge's director of grain market analysis in Chicago. The USDA may revise its global export forecast of 1.45 billion bushels by as much as 150 million, he said.

U.S. corn inventories on Sept. 1 already are forecast by the USDA to be more than double a year earlier, so reduced exports will mean even bigger reserves. Stockpiles before this year's harvest will reach 1.855 billion bushels, compared with 1.792 billion estimated by USDA in December and 824 million held a year earlier, a Bloomberg survey showed. Cekander said the inventory may reach 1.984 billion.

Lower prices probably won't spark changes in what farmers plant, said Michael Boehlje, an agricultural economist at Purdue University in West Lafayette, Ind. In the past eight years, the global harvest of 13 major crops has increased by 147 million acres, lead by a 77.1 million-acre jump in corn.

"Now we have a bigger factory, and demand growth is slowing down, so we have to figure out how to absorb that production," Boehlje said. "That's why I'm concerned that maybe we won't be able to see a price recovery as we'd like."

Corn futures for March delivery may drop to $3.95 before expiring in the next two months, while the July contract slips to $3.50, if this year's crop is planted as normal, said Dale Durchholz, the senior grain analyst for AgriVisor in Bloomington, Ill.

U.S. farmers probably collected 161.1 bushels an acre last year, more than the 160.4 estimated in December, a survey showed. The USDA has raised its production forecast from November to January in seven of the past 10 years, data show.

Productivity was boosted last year by cool weather in July, when corn was reproducing. Six states including Illinois, the second-biggest grower, had temperatures that were among the coolest in 119 years of government data. Much of the eastern U.S. in July was among the wettest since 1894.

Farmers also are planting more seeds. Five of the top 10 producing states reported record plant populations in 2013, led by Minnesota at 30,950 an acre, up 3.2 percent from 30,000 a year earlier, USDA data show. Illinois was at 30,850 plants, up 3.5 percent.

Stockpiles are getting harder to predict because U.S. growers are using more silos on their farms for storage rather than paying commercial grain elevators, increasing the amount of data that must be collected by the government. On-farm storage climbed 1.4 percent to 12.975 billion bushels in December 2012, the most since at least 1989, USDA data shows.

Prices could keep dropping as farmers sell stockpiled corn, said Kim Craig, head of grain merchandising for Deer Creek, Illinois-based Bell Enterprise Inc., a private grain handler with 4.6 million bushels of storage. Craig said farmers probably are withholding supply as they await a rebound in prices, with only about 25 percent of last year's crop sold, the lowest for this time of year since he began buying grain 31 years ago.

The USDA's estimates of Dec. 1 corn inventories have exceeded analyst forecasts in three of the past five years, data show, usually because traders overestimated feed demand, according to AgResource's Tierney, a former USDA economist.

Domestic livestock herds are shrinking. The number of cattle in American feedlots on Dec. 1 was the second-lowest since the government began using its current methodology to track the data in 1996, the USDA said Dec. 20. Beef output in the U.S., the world's biggest producer, may slump 5.7 percent next year to the lowest since 1993, the government projected.

The U.S. hog-breeding herd unexpectedly declined 1.1 percent on Dec. 1 even has corn prices fell. The total number of hogs and pigs at the start of last month slid 0.7 percent, partly as a result of a virus that that has been killing young piglets since April.

"Everyone assumes that lower prices boosted feed usage, but the animal numbers are down from a year ago," said Randy Mittelstaedt, the director of research for R.J. O'Brien & Associates in Chicago. "The market may be disappointed by the feed demand."

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