Corn may advance to a record as “nervousness” returns about global supply and harvest yields in the U.S., the biggest shipper, may be less than expected, according to Newedge USA LLC, the world’s biggest futures broker.
Futures may rally after the U.S. harvest in October, jumping to $7.75 to $8 a bushel, as importers fight for supplies and the market contends with a third year of global deficit, said Dan Cekander, director for grain research at Newedge, the top broker by customer accounts.
“Corn is king,” Cekander, who has been tracking agricultural markets for 32 years, said in an interview in Singapore yesterday. “They may start to put some risk premium in the market,” he said, referring to traders and investors pricing in the possibility of lower harvests in the U.S.
Higher corn and rice prices kept the United Nations Food Price Index near a record in August as demand drains global corn stockpiles forecast by the U.S. government to drop to a five-year low at the end of 2011-2012. Corn’s decline will not last and the price may average $7.15 in the fourth quarter, said Standard Chartered Plc analyst Abah Ofon.
“In the cereal market the only concern has been corn,” Abdolreza Abbassian, senior economist at the United Nations Food & Agriculture Organization, said in an interview in Singapore.
Corn for December delivery added as much as 0.4 percent to $6.9325 a bushel in Chicago, reversing a 0.6 percent loss, and traded at $6.9175 at 1:16 p.m. in Singapore. Futures gained 37 percent in the past year. The most-active contract touched a record $7.9925 a bushel in June 2008, Bloomberg data show.
Cekander joins Goldman Sachs Group Inc. in expecting that the U.S. stockpiles in the year ending Aug. 31, 2012, may be smaller than the 672 million bushels estimated by the U.S. Department of Agriculture on Sept. 12.
Goldman analysts Damien Courvalin and David Greely said on Sept. 12 that they saw “upside risk” to their three-month forecast of $7.35 and prices may need to rise “closer to $8” to cause ethanol-demand destruction. Prices of all grains are probably approaching their bottom, said Ofon today.
Global harvests will increase to 854.67 million metric tons in the 2011-2012 season from 823.97 million tons a year ago, the USDA said Sept. 12. It pared its outlook for the current marketing year from 860.52 million tons as it predicted lower yields in the U.S. It estimated demand at 861.58 million tons.
China, the second-largest corn user, may return to buy U.S. corn in February and March when the supply situation becomes clear, Li Xigui, deputy head of grains at the China National Grains and Oils Information Center, said at a conference.
“Corn at $7 is too expensive for China,” Li said. U.S. corn inspected for export to China totaled 4.835 million bushels in the week ended Sept. 15, or 22 percent of the total for all destinations and the first shipments since the week of Aug. 25, the Department of Agriculture said Sept. 19.
The country will become a major importer in the next five years as production trails demand growth, Li said.
Signs that U.S. yields may be smaller than the USDA forecast are beginning to show, Cekander said. About 51 percent of the U.S. crop was rated good to excellent in the week to Sept. 18, down from 53 percent a week earlier and 68 percent a year ago, said the USDA. The percentage of corn with the top ratings fell to the lowest for this time of year since 2003, it said.
Lower harvests in the U.S., which grows about 37 percent of global output, may reduce total supply, widening the deficit estimated by the USDA at 6.9 million tons.
“With ratings going down, I think the nervousness about the yield could come back,” said Cekander, 56, who comes from three generations of corn farmers in Illinois, the second-largest U.S. producing state.