Corn Heads for Biggest Annual Gain in 4 Years on Global Deficit

Corn headed for the biggest annual gain in four years in Chicago as rising demand in China and drought in Argentina, the second-largest exporter, threatened to cause a global supply deficit.

March-delivery corn added 0.7 percent to $6.2025 a bushel on the Chicago Board of Trade at 2:14 p.m. Paris time. The grain has advanced 50 percent this year, more than the 18 percent climb by the Standard & Poor’s GSCI Commodity Index.

World corn inventories will slide 12 percent to a four-year low of 130 million metric tons at the end of the current season as demand outstrips production, the U.S. Department of Agriculture forecast Dec. 10. The USDA outlook assumes a record harvest in Argentina of 25 million tons, unhurt by dry weather.

“We’ve seen the weather in Argentina and other parts of South America, and that will probably result in some crop losses,” Michael Pitts, commodity sales director at National Australia Bank Ltd., said by phone from Sydney today. The USDA will likely cut production estimates in its January report, supporting prices through the middle of 2011, he said.

Cotton and silver led gains in the GSCI Commodity Index this year, advancing 92 percent and 81 percent respectively. Natural gas shed the most, slipping 22 percent, followed by New York-traded cocoa with an 8.4 percent drop.

Corn Usage

Corn consumption is forecast by the USDA to outstrip production by 17.2 million tons this season as global harvests of wheat were ravaged by drought and excessive rains, tightening supply of grains used in food and livestock feeds. Demand for corn is being driven by increased use of animal feed in China and ethanol in the U.S.

Production of wheat was forecast to trail demand by 20 million tons, taking inventories at the end of this season to the lowest level since 2008-2009, according to USDA data.

March-delivery wheat gained 0.2 percent to $7.86 a bushel, taking this year’s climb for the most-active contract to 45 percent.

Wheat rose this year as drought devastated crops in Russia, halting shipments from the world’s second-biggest exporter of the grain in the 2009-2010 season. Excessive rain in Canada, Australia and Germany harmed crop quality, lowering the supply of milling-quality wheat.

Cereal Harvests

Milling wheat for January delivery added 1.8 percent to 252.50 euros ($337.59) a ton on NYSE Liffe in Paris. Wheat futures jumped 92 percent in the French capital this year.

Overall world grain production, including corn and wheat, will lag behind demand this year for the first time in three years, according to a report released by the United Nations’ Food and Agriculture Organization earlier this month.

Output of all cereals will drop 1.4 percent to 2.23 billion tons this season, while demand will rise 1.8 percent to 2.26 billion tons, the FAO said.

“On the fundamentals for wheat, we don’t think too much has changed over the last couple of weeks,” Pitts said. The effect of dry weather on Argentine corn “will be supportive of wheat. We expect investor inflows” into grains, he said.

Soybeans for March delivery added 0.8 percent to $13.8725 a bushel in Chicago, taking gains for the most-active contract to 32 percent this year, the second annual climb and the largest in three years.

Argentina’s soybean crop, the world’s third-biggest, may face another month of drought caused by La Nina weather conditions, Jim Dale, senior meteorologist at High Wycombe, England-based forecaster British Weather Services, wrote in an e-mailed comment yesterday.

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