Corn Futures Jump Most Since June on Unexpected U.S. Supply Drop

-- Corn prices surged the most in three months after the U.S. reported an unexpected plunge in domestic inventories to an eight-year low, signaling stronger demand for the grain.

Stockpiles left from last year’s harvest in the U.S., the world’s biggest grower and exporter, totaled 988 million bushels on Sept. 1, down 12 percent from 1.128 billion a year earlier, the U.S. Department of Agriculture said today in a report. Analysts in a Bloomberg survey expected 1.145 billion, on average. Wheat inventories fell to a four-year low, and sorghum reserves were the smallest since 1996, the agency said.

Grain supplies were tightening as record Midwest heat in June and July sparked the worst drought since 1956, causing crop damage that insurers estimate may double payouts to U.S. farmers this year to more than $20 billion. Corn prices have surged 49 percent since mid-June, boosting costs that already are forcing output cuts by meat companies including Sanderson Farms Inc. (SAFM) and ethanol makers including Valero Energy Corp. (VLO)

“With corn inventories less than a billion bushels and wheat and sorghum stocks also shrinking, the grain trade is looking at a very tight supply situation,” Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said in a telephone interview. “This report signals that demand has not slowed, shifting the focus to the smaller harvest expected this year.”

Price Rally

Corn futures for December delivery rose by the 40-cent limit on the Chicago Board of Trade to close at $7.5625 a bushel at 2 p.m. That 5.6 percent gain was the biggest for the most- active contract since June 25. Before the report, the price slipped to $7.05, the lowest since July 12 and 17 percent below the record of $8.49 reached on Aug. 10.

The USDA this month predicted a harvest of 10.727 billion bushels, a drop of 13 percent from last year and down from 10.779 billion forecast in August. The agency, which had been predicting a record crop in June, before the drought, will update its projections for major crops on Oct. 11.

Today’s stockpile tally showed a decline from the USDA’s Sept. 12 report, when the agency predicted an increase to 1.181 billion bushels because some of this year’s harvest may have been consumed in place of the 2011 crop. Dry weather allowed farmers before Sept. 1 to collect grain that normally isn’t ready until October. The government said 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.

Less Output

Rabobank said in an e-mailed report today that the inventory estimate probably includes some grain from the 2012 crop, suggesting feed demand was larger than implied in the government report. Production this year probably will drop to 10.2 billion bushels, or 4.9 percent less than the USDA forecast, the bank said.

The government probably will boost its price forecast, which would “be bullish for CBOT corn futures,” Rabobank analysts including Luke Chandler said in the report today.

Declining U.S. output will reduce global supplies by 4.9 percent from a year earlier, the International Grains Council said today. World growers will harvest 833 million metric tons in the 2012-2013 crop year, down from 875 million the previous year, the London-based council said. World inventories before next year’s harvest will fall to 118 million tons from 135 million estimated this year, the council said.

Soybeans

U.S. soybean inventories on Sept. 1 totaled 169 million bushels, down from 215 million a year earlier, the USDA said. The average analyst estimate was 130 million bushels. The department raised its 2011 production figure to 3.094 billion bushels, up 39 million bushels, or 1.2 percent, from its Sept. 12 estimate.

Soybean consumption in the final quarter of the year ended Aug. 31 rose to 498 million bushels from 405 million a year earlier, the USDA said.

“Soybean supplies will be tight for the next six months,” Dave Marshall, a farm marketing adviser for Toay Commodity Futures Group LLC in Nashville, Illinois, said before the report. “Supplies in South America are headed for a record, and people are shifting their focus to the start of the planting season this month in Argentina and Brazil.”

Soybean futures for November delivery rose 1.9 percent to settle at $16.01 a bushel in Chicago, paring this week’s decline to 1.3 percent. The price fell 8.9 percent in September, after reaching a record $17.89 on Sept. 4 on speculation that August rains boosted Midwest yields this year.

About 2.634 billion bushels are expected to be harvested this year, the USDA said in a Sept. 12 report. The figure is 15 percent smaller than today’s revised estimate for 2011.

Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, followed by soybeans at $35.8 billion, 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

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