Corn Prices Sustained as Argentina Fails to Cover U.S. Loss

Corn prices will stay high as a record crop in Argentina and a higher harvest in Brazil will fail to replenish stockpiles after production losses from the worst U.S. drought since the 1930s, the United Nations said.

“It is too early to talk about a full recovery in production, stocks and a decline in international prices,” said Liliana Balbi, a senior economist at the UN’s Food & Agriculture Organization. It will take a recovery in output in the U.S., the largest grower and exporter, and bumper crops in China and Europe to ease the supply concerns, she said.

Global inventories will drop 12 percent to a six-year low of 116 million metric tons before the 2013 Northern Hemisphere harvest, as the drought cut U.S. output by the most since 1996, the Department of Agriculture said Jan. 11. Higher prices may curb a decline in food costs tracked by the UN. Goldman Sachs Group Inc. reiterated yesterday its forecast that corn will rise to $8.25 a bushel in three months, saying better U.S. weather is needed for a recovery in the next crop.

Argentina’s harvest will jump to a record 25.5 million tons in the year beginning March 1, from 21 million tons a year earlier and an earlier estimate of 24 million tons, said Balbi, who leads an FAO team that issues global warnings on potential disruption to food supplies. The FAO estimate was raised as improving conditions boosted yields, she said in an e-mail to Bloomberg yesterday before releasing a country report.

Record Prices

Corn for delivery in March was little changed at $7.2475 a bushel on the Chicago Board of Trade at 5:05 p.m. Singapore time. While futures have declined 15 percent from a record $8.49 in August, they are still up 21 percent in the past year.

The drop from record prices spurred higher feed use in livestock and poultry, draining the U.S. stockpiles to 8.03 billion bushels (204 million tons) as of Dec. 1, the smallest post-harvest supply in nine years, according to USDA data. World reserves will be 13 percent of consumption in food, sweetener, ethanol and feeds, the lowest ratio since 1974, USDA data show.

“Old-crop stocks could still tighten further, without higher prices,” Morgan Stanley analysts led by Hussein Allidina wrote in a report Jan. 11.

The USDA estimates Argentina will produce 28 million tons. Brazil, set to overtake Argentina as the second-largest shipper, will harvest 71 million tons, 1 million tons more than expected in December, the Washington-based agency said Jan. 11. The U.S. collected 273.8 million tons of corn in 2012, down 13 percent from a year earlier, it said.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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

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