Farmers could see record corn crop
By JEFF WILSON
CHICAGO — U.S. farmers are poised to reap their biggest-ever corn crop, expanding global stockpiles to the most in 13 years and spurring hedge funds and other speculators to make record bets that prices will keep slumping.
The harvest in the largest grower will jump 30 percent to 14.036 billion bushels (356.5 million metric tons), the average of 27 analyst estimates compiled by Bloomberg shows. That’s 53 million bushels more than they expected a month ago and 86 million above the government’s July forecast. Record crops from the United States to Brazil to Ukraine will expand world inventories by 23 percent to 152.36 million tons in a year, according to the average of 12 predictions.
Surging supply spurred analysts from Goldman Sachs to cut their price forecasts this week and R.J. O’Brien & Associates in Chicago, the U.S. grain-trading hub, says futures may drop as much as 24 percent to $3.50 a bushel this year. Speculators turned bearish a month ago for the first time since 2010 as crops recover from last season’s drought and farmers planted the most acres since 1936.
“We are going to switch from wind blowing through empty grain bins to piles of corn laying on the ground,” said Diana Klemme, a vice president at Grain Service Corp., an advisor and broker in Atlanta. “It is possible to see sub-$4 corn,” a price last seen in 2010, she said.
Futures dropped 34 percent to $4.605 on the Chicago Board of Trade this year, reaching a 34-month low of $4.55 on Aug. 6. Corn is the second-biggest decliner behind silver in the Standard & Poor’s GSCI Spot Index of 24 commodities, which retreated 2.2 percent. The MSCI All-Country World Index of equities rose 10 percent and the Bloomberg U.S. Treasury Bond index lost 2.6 percent.
Goldman’s analysts lowered their three-month forecast to $4.25 from $4.75 in a report Aug. 6 and said U.S. production would probably reach 14.138 billion bushels as yields rebound 30 percent to the second-highest ever. Analysts at Rabobank International last month cut their first-quarter forecast to $4.40 from $4.80 in June.
The U.S. Department of Agriculture updates its estimates for global crop production, demand and stockpiles at noon in Washington on Aug. 12.
Cheaper corn is boosting profit for buyers including Archer-Daniels-Midland Co., the largest processor of the grain, and Tyson Foods Inc., the biggest U.S. meat processor. Declining feed costs should also help curb global meat prices, which rose to within about 2 percent of a record in June, according to data from the United Nations’ Food & Agriculture Organization in Rome.
Hedge funds and other large speculators increased their netshort position, or bets on lower prices, for two consecutive weeks to 108,089 futures and options, U.S. Commodity Futures Trading Commission data show. A futures contract represents 5,000 bushels. Their net-long holdings peaked last year at 342,893 contracts in August as the U.S. endured its worst drought since the 1930s and prices reached a record $8.49.
The scale of bearish bets presents a risk because it makes it harder to find more sellers, Morgan Stanley analysts wrote in a report Aug. 5. Signs are “building that a corn correction could be ripening” and export sales of this year’s crop are running at the fastest pace in a decade, they said.
Weather could still disrupt the development of the crop and curb yields. Heavier-than-normal rain delayed planting in parts of the Midwest, the biggest producing region, in May and June. Cooler temperatures may slow growth and increases the risk of frost, Morgan Stanley said. Harvesting already started in Texas and Louisiana and should start in late September in the Midwest.
Slumping prices should also spur demand limiting gains in stockpiles. Global consumption jumped 6.6 percent in 2008, the most since 1987, as futures tumbled almost 11 percent, USDA data show. Some livestock producers added more wheat to feed rations last year as corn surged to a record. Wheat for December delivery is trading at a $1.98 premium to corn for the same month, compared with an average discount of $1.26 last year, bourse data compiled by Bloomberg show.