US corn sales fall most since ’75; record crop ready to reap
By Jeff Wilson
CHICAGO — Demand for U.S. corn fell the most since 1975 in the past year, leaving a bigger-than-forecast surplus stacked in silos just as farmers begin reaping what the government says will be the world’s largestever crop.
Domestic consumption and exports fell a combined 10 percent in the year ended Aug. 31, government data show. Total supply after the harvest starts this month will rise 24 percent to 14.537 billion bushels as fields recover from last year’s drought, according to the average of 28 analyst estimates compiled by Bloomberg. Goldman Sachs analysts say corn will drop to $4.25 a bushel in three months, or 6.1 percent less than now.
The U.S. will reap 28 percent more corn this season, doubling inventories before next year’s harvest after losing market share to shippers in Brazil, Argentina and Ukraine. Global supply is surging after prices reached a record $8.29 in 2012 and futures are heading for the biggest annual drop in at least five decades. Cheaper grain is boosting profit for Archer-Daniels-Midland, which makes ethanol from the grain, and Sanderson Farms, the third-largest U.S. poultry producer.
“Domestic utilization is stagnant, and high prices the past five years have shifted foreign demand to other suppliers,” said Michael Swanson, the senior agricultural economist in Minneapolis for Wells Fargo, the largest U.S. farm lender. “We are transitioning from tight supplies to abundant inventories, and that may result in several years of lower prices. That’s good news for everyone that uses corn.”
Futures plunged 35 percent to $4.525 on the Chicago Board of Trade this year, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which slid 1.7 percent. The MSCI All-Country World Index of equities rose 13 percent since the end of December and the Bloomberg U.S. Treasury Bond Index lost 2.4 percent.
Domestic stockpiles on Sept. 1 probably totaled 694 million bushels, more than the 661 million the U.S. Department of Agriculture estimated on Sept. 12, the Bloomberg survey of analysts showed. Demand for U.S. supplies in the next 12 months will be at least 3.2 percent below the USDA forecast because of competing supply in export markets, a lack of growth in ethanol demand and slowing expansion in meat production, Swanson said.
The U.S. share of global exports fell to 20 percent in the 12 months ended Aug. 31, from 33 percent a year earlier, government data show. The USDA says that will rebound to 30 percent this season as the U.S. crop helps boost world output by 11 percent to 956.7 million tons. The agency will update its inventory estimate on Monday at noon in Washington.
Record harvests may not mean an immediate glut of supply because U.S. growers increased their storage capacity, allowing them to stockpile grain until prices rise. On-farm storage expanded 16 percent in the decade through 2012 to almost 13 billion bushels, the most since at least 1989, USDA data show. Grain companies expanded capacity by 20 percent to 10.247 billion bushels.
There may also be plenty of space for the new crop after U.S. output fell 13 percent last year. The farmerowned West Central Cooperative in Ralston, Iowa, has its smallest stockpiles since 1996 and 96 percent of its storage space is empty, said Roger Fray, an executive vice president.
The government estimates 31 percent of the crop is usually sold from Sept. 1 to Dec. 1. This year, farmers are in no hurry, with sales at about a third of normal for this time of year, Fray said. Soybeans are trading at the highest ratio to corn since 2009, and that may encourage farmers to store corn and sell soybeans, said Peter Meyer, a senior director for Pira Energy Group in New York.
Hedge funds and other large speculators have been betting on lower corn prices since July, with a net-short position of 104,211 futures and options on Sept. 17, Commodity Futures Trading Commission data show. One futures contract represents 5,000 bushels now valued at $22,625.
The world is less dependent on U.S. corn, which accounted for more than 67 percent of exports in 2006, government data show.