Corn Falls From Record as USDA Sees High Prices Eroding Demand

Corn futures fell the most in four weeks on signs that record-high prices during a crop-damaging U.S. drought may erode grain demand by makers of animal feed, ethanol and food products.

While the domestic harvest probably will drop 13 percent to a six-year low of 10.78 billion bushels this year, demand will shrink 10 percent from a year earlier, the U.S. Department of Agriculture said today in a report. Corn futures are up 60 percent since mid-June as the crop conditions deteriorated to the worst since 1988.

“The USDA is saying that high prices have already begun to slow demand,” Mark Schultz, the chief analyst at Northstar Commodity Investment Co. in Minneapolis, said in a telephone interview. “Ethanol production will slow as corn availability declines, and hog, cattle and dairy producers are already liquidating herds.”

Corn futures for December delivery slid 1.8 percent to close at $8.0925 a bushel at 2 p.m. on the Chicago Board of Trade, the biggest decline since July 11. The price fell as much as 2 percent today after jumping 3.1 percent to an all-time high of $8.49.

The government forecast U.S. farm prices will average a record $8.20 in the marketing year that begins Sept. 1, up from $6.25 this year.

Production outside of the U.S. will rise 2.2 percent to 575.22 million metric tons in the year that begins Oct. 1, lead by a record 200 million tons in China, the world’s second- biggest grower and consumer, the USDA said. China will import 2 million tons, down from 5 million forecast a month ago and 5 million estimated for this year, the agency said.

South America

Brazil and Argentina will produce and export more, partially offsetting the smaller U.S. harvest, the USDA said. The two South American countries will collect a combined 98 million tons, a record and up from an estimated 93.8 million this year, the agency said. Combined exports may jump 8.3 percent to 32.5 million tons, it said. Argentina is the biggest exporter after the U.S., followed by Ukraine and Brazil.

“The current elevated level of corn prices indicate that the market has broadly priced-in the impact of lower-than- initially anticipated production in the U.S.,” London-based Capital Economics Ltd. said in a report today. “The uncertain global economic outlook will drag grains prices lower,” with corn dropping to $6.75 by the end of the year, the researcher said.

Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, government figures show.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net