Corn Surges to 30-Month High After USDA Cuts Supply Estimates; Wheat Gains
Jan. 13 (Bloomberg) -- Abdolreza Abbassian, senior economist at the United Nations' Food and Agriculture Organization, discusses global food prices. The Rome-based FAO said last week that its world food-price index rose to a record in December, topping a previous all-time high set in June 2008. Abbassian speaks from Rome with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Corn surged to the highest price in almost 30 months after the U.S. government lowered forecasts for domestic inventories, tightening global food supplies after adverse weather slashed harvests. Wheat also climbed.
March-delivery corn rose as much as 1.7 percent to $6.42 a bushel on the Chicago Board of Trade, the highest price for a most-active contract since July 2008. The grain was at $6.3675 at 12:20 p.m. Paris time, adding to yesterday’s 4 percent jump.
The U.S. Department of Agriculture cut its estimate of the country’s 2010 corn harvest, forecasting a global production deficit of 20.1 million metric tons, 17 percent more than it expected in December. Corn stocks in the U.S., the world’s largest grower, will fall to 745 million bushels (18.9 million tons) before this year’s harvest, the smallest since 1996, the USDA said.
U.S. stockpiles will be “extraordinarily tight,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report e-mailed today. “Those tight stocks prompted record U.S. corn prices a few seasons ago.”
Corn futures surged to a record $7.9925 a bushel in July 2008 as global supplies of the grain and other cereals including rice and wheat tightened. Concerns of food shortages sparked protests from Haiti to Egypt.
The Standard & Poor’s GSCI Agriculture Index, which tracks eight futures, has surged 70 percent since the end of June as drought in Russia and excessive rains in Canada and Pakistan curbed harvests.
Widening Deficit
Widening deficits in corn and wheat, and falling supplies of soybeans have helped fuel fears of a repetition of the food shortage scare in 2008. The United Nations’ Food and Agriculture Organization Food Price Index surged to a record last month, surpassing the previous high in 2008.
In yesterday’s report, the USDA forecast global wheat use will exceed production by 19.4 million tons at the end of the current season. The deficit forecast was lowered from 20 million tons in December, as the agency expects lower consumption in the European Union, Pakistan and the U.S.
Wheat for March delivery gained as much as 1.6 percent to $7.825 a bushel in Chicago, before trading at $7.7425. Milling wheat for delivery the same month traded on NYSE Liffe in Paris slipped 0.1 percent to 255.25 euros ($335.58) a ton.
March-delivery soybeans rose as much as 1.1 percent to $14.30 a bushel, the highest level in Chicago since July 2008, before trading at $14.16. The contract closed 4.3 percent higher yesterday after the USDA released its report.
Soybean Stockpiles
Inventories of soybeans in the U.S., the world’s largest grower and exporter, were forecast to drop to 3.82 million tons before this year’s harvest, from 4.49 million tons estimated last month and 4.1 million tons last year, the USDA said.
The agency also cut its outlook for Argentine soybean production as the La Nina weather phenomenon brings drought to South America’s soybean areas. The USDA forecast global inventories of 58.28 million tons before the next Northern Hemisphere harvest, from 60.1 million tons estimated in December and 60.2 million tons a year ago.
La Nina “looms as a major risk to send world soybean stocks-to-use ratios to multi-year lows and prices to record highs,” analysts Luke Chandler, Keith Flury and Erin FitzPatrick at Rabobank in London wrote in a note to investors. “Lower-than-expected production in South America would increase demand for U.S. soybean exports.”
Commodities have climbed in the past year, including cotton and sugar prices that have almost doubled since the end of June.
‘No Room for Error’
“There’s no room for error anymore” on farms around the world, Dan Basse, the president of AgResouce Co., a commodity consultant in Chicago, said yesterday. “With any weather issues, we’re going to make new all-time highs in corn and soybeans, and to a lesser degree, wheat futures.”
Adverse weather led to a drop in 2010 corn production in the U.S. and a smaller harvest of soybeans than expected, government data show.
“The pressure is acute, in terms of planting fence row to fence row, and really getting the message out to farmers that they need to be planting up their front yards,” Basse said on a conference call with reporters and analysts.
Prices across the grains and oilseeds market will be supported through the next 12 months, Commonwealth Bank’s Mathews said.
That will lead to “an intense fight for acres over the next three to six months around the world, as the market tries to reduce the production deficits or supply limitations that currently exist both in corn and soybeans,” he said.
To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net.
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.
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