Corn Heads for Biggest Weekly Increase in Three Months as Supply Declines

Corn, little changed, is set for the biggest weekly gain in three months on signs inventories will be lower than expected in the U.S., stoking concern food supplies may lag behind demand after adverse weather cut harvests.

The March-delivery contract traded at $6.4350 a bushel on the Chicago Board of Trade at 2:59 p.m. Tokyo time. Futures rose to $6.495 yesterday, the highest since July 2008. Prices gained 8.2 percent this week, the most since the week ended Oct. 8.

The U.S. Department of Agriculture on Jan. 12 reduced its estimate of the country’s 2010 corn harvest, forecasting a global output deficit of 20.1 million metric tons, 17 percent more than it expected in December. Corn stockpiles in the U.S. will fall to 745 million bushels (18.9 million tons) before this year’s harvest, the smallest since 1996, the USDA said.

“With the USDA report, corn and soybeans will remain bullish until we see bumper new crops later this year,” said Hiroyuki Kikukawa, the general manager of research at IDO Securities Co. in Tokyo. “Supplies are very tight” after adverse weather reduced production, he said.

March soybeans climbed 0.3 percent to $14.20 a bushel after the oilseed touched $14.325 yesterday, the highest price since July 2008. The contract has risen 4 percent this week.

Inventories of soybeans in the U.S. may decline 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 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.

Falling Output

Soybean output in Argentina, the third-largest producer, is forecast to fall 15 percent to 47 million tons this year because of water shortages in the main growing regions, the Buenos Aires Cereals Exchange said. Output will decline from a record 55 million tons in 2010, it said yesterday.

Farmers in Argentina and Brazil, the second-largest soybean producer after the U.S., are facing water shortages because of La Nina, a weather phenomenon that forms in the Pacific Ocean. Argentina’s main soybean growing area, which accounts for about 35 percent of total output and is located in the fertile Pampas, is most affected by the lack of water.

“The current situation in the grain market is very similar to 2008” when record corn, soybeans, wheat and rice prices exacerbated inflation, driving some producing nations to restrict exports, Kikukawa said.

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. Corn has jumped 69 percent in the past year, while wheat has gained 48 percent and soybeans 44 percent.

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 when food inflation spurred protests from Haiti to Egypt and Cameroon.

Wheat for March delivery fell as much as 0.9 percent to $7.765 a bushel and last traded at $7.785. The price has risen 0.6 percent this week.

Pakistan, Asia’s third-largest producer of wheat, will sell 700,000 tons overseas, resuming exports after a three-year ban, Najam Shah, food director for the Punjab province, said yesterday.

India, facing the highest food inflation in six months, should emulate China in building strategic stockpiles of staples to cool prices, Atul Chaturvedi, chief executive officer for farm business at Adani Enterprises Ltd., the nation’s biggest farm goods trader, said Jan. 12.

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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