Shrinking U.S. Corn Supply Trails Use for First Time in 16 Years

Corn supplies in the U.S., the world’s biggest grower and exporter, are dropping below last year’s domestic usage for just the third time in half a century after a Midwest drought damaged crops from Ohio to Nebraska.

Production this year plus inventories before the harvest will reach 11.872 billion bushels, less than the 12.33 billion consumed or exported last year, according to U.S. Department of Agriculture data and a Bloomberg survey of 29 analysts. Only twice since 1960 has supply failed to exceed usage from the previous year, and the last time was in 1996. The USDA will update its inventory tally tomorrow at 8:30 a.m. in Washington.

Record Midwest heat in June and July sparked the worst drought since 1956, causing crop damage that insurers estimate may double payouts to farmers this year to more than $20 billion. Plunging output in the U.S. would erode global grain supplies and boost costs that already are forcing production cuts by meat companies including Sanderson Farms Inc. (SAFM) and ethanol makers including Valero Energy Corp. (VLO)

“Supplies are tighter than they will appear in this report,” David Smoldt, a vice president at INTL FCStone Inc. in West Des Moines, Iowa, said in a telephone interview.

Stockpiles on Sept. 1 probably were 1.145 billion bushels, less than the 1.181 billion the USDA said on Sept. 12, according to the average of estimates in the Bloomberg survey. While that’s up from 1.128 billion a year earlier, the 2012 figure was inflated by an early harvest, the respondents said.

Inflated Numbers

Dry weather allowed farmers before Sept. 1 to collect crops that normally aren’t ready until October. As of Sept. 21, 39 percent was harvested, compared with 15 percent a year earlier, USDA data show. The government said Sept. 12 that 1.2 billion bushels of this year’s crop were available for consumption before Sept. 1, about 700 million more than a year earlier.

“The market doesn’t act like we had more than a billion bushels of carryover, with cash prices at records as harvesting increased,” Smoldt said.

In Decatur, Illinois, the hometown of Archer Daniels Midland Co. (ADM), buyers of the grain paid an average premium of 49.8 cents a bushel above the Chicago futures price to take delivery in August, the most for that month in at least four years, according to data from grain handler CGB Enterprises Inc. A year earlier, they were paying a 33.5-cent premium.

Paring Gains

The premium is up even as the record harvest pace sent corn futures down 15 percent from an all-time high of $8.49 a bushel on Aug. 10. Corn for December delivery closed yesterday at $7.2475 on the Chicago Board of Trade. Prices still are up 43 percent since June 15, more than any of the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which is up 12 percent over the same period. The MSCI All-Country World Index of equities rose 8.2 percent, and Treasuries returned 0.1 percent, a Bank of America Corp. index shows.

Citi Research told investors on Sept. 25 that the “supply- shocked outlook” will push corn prices 17 percent higher before the end of the year to $8.50.

“It's been a full year of strong cash prices, and we still have uncertainty about supplies,” said Darrel Good, an agricultural economist at the University of Illinois in Urbana. “The market will have some difficulty interpreting the stocks number because of the co-mingling of old- and new-crop supplies.”

Stockpiles are getting harder to predict as growers plant and harvest earlier, seeking higher yields, and as they build more silos on their land rather than sending grain to commercial elevators.

Missed Forecasts

Analysts and traders have missed the USDA’s inventory forecasts by 194 million bushels (4.93 million metric tons) on average in the past nine quarters, data compiled by Bloomberg show. That’s almost twice as much as in the previous five years. Corn futures fluctuated by the maximum allowed by the CBOT after seven of the past nine quarterly reports, with an average intraday swing of 5.8 percent.

U.S. production will drop 13 percent this year to 10.727 billion bushels, the biggest decline in 17 years and the smallest crop since 2006, the USDA said on Sept. 12. After predicting a record harvest in June, the government has cut its forecast three times in as many months.

Domestic feed, food and fuel production will consume nearly 89 percent of total usage, the highest in 40 years, USDA data show. U.S. exports, the world’s largest, may to fall to the lowest since 1975 as overseas buyers shift to other grains and suppliers, the government estimates. World inventories as a percentage of use before next year’s harvest will drop to the lowest since 1974, government data show.

“We have yet to see evidence that domestic usage will slow enough to ration supplies,” said Dan Basse, the president of AgResource Co. in Chicago. “Prices will likely rise to new records.”

Wheat, Soybeans

The USDA probably will raise its wheat-inventory estimate as U.S. farmers harvest the biggest crop in four years, according to the Bloomberg survey. Reserves on Sept. 1, three months after the start of the marketing year, probably were 2.272 billion bushels, up 5.8 percent from a year earlier and the largest since 2010.

Soybean inventories may fall to an eight-year low of 130 million bushels from 215 million a year earlier, the Bloomberg survey showed. Stockpiles are poised to drop to the lowest relative to consumption since 1965, after droughts in the Midwest and in South America, AgResource’s Basse said.

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

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