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U.S. Corn Reserve Seen Surging by Allendale on Feed-Use Drop

U.S. corn stockpiles before this year’s harvest will be 45 percent bigger than forecast by the government as high prices curb use by cattle producers and ethanol makers, according to broker Allendale Inc.

Inventories on Aug. 31 will total 873 million bushels, more than the 602 million forecast by the U.S. Department of Agriculture on Jan. 11, Allendale said today in a statement at its annual conference in Crystal Lake, Illinois. Feed use will drop to 4.3 billion bushels, less than the 4.45 billion estimated by the USDA. Demand from ethanol plants, the biggest users of corn, will be 4.45 billion bushels, compared with the USDA forecast of 4.5 billion.

“The demand is gone,” after last year’s drought sent corn prices surging to a record high, Steve Georgy, a broker at McHenry, Illinois-based Allendale, said in an interview. “The higher prices are leading to herd liquidation.”

While corn futures on the Chicago Board of Trade are down since reaching an all-time high of $8.49 a bushel on Aug. 10, closing yesterday at $7.2075, prices still are higher than last year’s record average of $6.89 and more than twice the average of 2009. The worst drought since the 1930s cut production in the U.S., the world’s largest grower and exporter, by 13 percent last year to the lowest since 2006.

Higher Costs

“How are you going to continue to feed $7 or $7.50 corn” to livestock, especially if meat prices aren’t rising as fast, Georgy said. Beef, pork and poultry producers have no incentive to buy higher-cost animals if it means losing money on meat sales, “so the demand keeps getting less for corn,” he said.

Production of corn, which farmers will start planting in May, will total 14.033 billion bushels in 2013, up 30 percent from last year’s drought-reduced crop of 10.78 billion bushels, Allendale said. Farmers will seed 97.6 million acres of the grain this year, up from 97.2 million in 2012, and yields will total 157.1 bushels an acre, compared with 123.4 in 2012, the company said.

Yields have historically rebounded after dry or hot years, according to Rich Nelson, Allendale’s chief strategist. After the drought of 1988, yields the following year were up 3 percent from the long-term trend, he said. Yields also rebounded after dry or hot weather in 1970, 1980 and 1983, Nelson said during a speech at today’s conference.

Harvest Gains

Output this year will rise 30 percent from 2012 on increased yields and harvested acres, faster than the 21 percent increase in usage, boosting stockpiles on Aug. 31, 2014, to 1.645 billion bushels, according to the Allendale report. Planted acres will rise 0.4 percent to 97.6 million while harvested area will surge 2.2 percent.

“The biggest difference isn’t going to be in the acreage increase,” Georgy said. “The biggest increase is going to be harvested acres. A 2 million-acre increase in harvested acres is going to be a drastic increase.”

U.S. exports of corn will surge to 2.1 billion bushels, more than double the 900 million forecast this year by Allendale, according to the report. The average cash price, pegged at $7.25 in the year through Aug. 31, will fall to $4.50 next year, Allendale said.

To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net

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

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