Corn Jumps as Feed Demand Eroding Drought-Reduced U.S. Supplies

Corn prices surged, capping the biggest weekly rally since July, after the government said stockpiles in the U.S., the world’s largest grower and exporter, shrank more than analysts expected because of a drought-reduced harvest and rising demand for livestock feed.

Inventories on Dec. 1 were 8.03 billion bushels (204 million metric tons), 17 percent less than the 9.647 billion held a year earlier, the U.S. Department of Agriculture said today in a report. Analysts surveyed by Bloomberg expected a drop to 8.219 billion. Supplies held in farmer grain bins fell 26 percent from a year earlier to the smallest for that time of year since 1995. The USDA said meat and poultry output will be 1.4 percent larger than forecast in December.

Corn production fell 13 percent last year after the worst drought since the 1930s damaged crops across the Midwest. After corn futures rallied as much as 68 percent since mid-June to a record in August, prices since then have slipped as the outlook for global supply improved and demand slowed. Tighter supplies than forecast may boost costs for ethanol producers including Poet LLC, and meat companies including Smithfield Foods Inc. (SFD) and Sanderson Farms Inc. (SAFM) that feed the grain to livestock.

“Supplies are tight, and the market’s job is to rally to slow down usage,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview. “Now the attention shifts to prevailing drought conditions in the western Midwest and the upcoming planting season.”

Corn futures for March delivery advanced 1.4 percent to close at $7.0875 a bushel at 2 p.m. on the Chicago Board of Trade, the biggest gain since Dec. 14. Prices rose 4.2 percent over five straight days, the first weekly rally since Nov. 30 and the biggest since July 20. Before the report, the contract tumbled as much as 1.8 percent.

Smaller Harvest

The harvest of corn, the nation’s biggest crop, totaled 10.78 billion bushels, the USDA said in a separate report today. While that’s up from 10.725 billion estimated in December, it’s down from 12.36 billion collected in 2011 and the lowest in six years. Analysts expected 10.65 billion bushels, on average.

Consumption in the three months through November was 3.74 billion bushels, down from 3.843 billion a year earlier. Exports will total 950 million bushels in the marketing year that began Sept. 1, according to the report. That compares with 1.15 billion forecast in December and 1.543 billion in the previous year.

Ethanol Use

An estimated 4.5 billion bushels will be used to produce ethanol, unchanged from the December forecast and down from 5.011 billion in the previous year, the USDA said. Feed demand will total 4.45 billion bushels, up from 4.15 billion projected a month ago and less than 4.548 billion a year earlier, the agency said.

Inventories before the 2013 harvest will total 602 million bushels, compared with 647 million estimated in December and 989 million at the start of this marketing year, the USDA said. Traders expected 647 million bushels.

Cash corn prices in the current marketing year will average $7.40 a bushel, unchanged from the month-ago estimate and up from $6.22 last year, according to the government.

World output in the crop year that began Oct. 1 will be 852.3 million tons, up from 849.09 million forecast last month and down from 883.54 million the previous year, the USDA said.

Global consumption is forecast to fall for the first time since 1996 to 868.11 million tons from 879.24 million last year.

Worldwide inventories at the end of the marketing year will be 115.99 million tons, down from 117.61 million predicted in December, on increased demand for livestock feed, the USDA said. The year-earlier figure was 131.79 million.

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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