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FCStone Says Crop Prices May Rebound as Supplies Tighten

Oct. 16 (Bloomberg) -- U.S. crop prices may rebound from recent lows as demand outpaces available supplies, said Mike O’Dea, a risk management consultant at INTL FCStone Inc.

U.S. farmers may harvest about 84.8 million acres of corn, less than the Department of Agriculture’s estimate of 87.7 million acres, as drought ruined fields and spurred more crop abandonment, O’Dea said today in an interview in London. Corn dropped 13 percent on the Chicago Board of Trade since drought concerns drove prices to a record $8.49 a bushel on Aug. 10. Prices may recover while remaining below record levels, he said.

Soybeans have dropped 16 percent since reaching a record $17.89 a bushel on Sept. 4, as the outlook for U.S. production improved while the U.S. government estimated that farmers in Brazil and Argentina will harvest record crops. “Logistical issues” may still limit South America’s ability to boost exports, and it’s too early in the region’s production season to rule out weather risks, O’Dea said.

“Bean prices at these levels are too low because they’re encouraging more demand,” said Kansas City, Missouri-based O’Dea, who spoke today at the U.K. Agriculture and Horticulture Development Board’s grain outlook conference in London. “Bean prices will rally over time. I don’t know if we’ll make new highs, but if you get a sniff of bad weather in South America these things will explode to the upside.”

Drought Conditions

Corn futures were little changed today at $7.3775 a bushel, with the most-active contract up about 14 percent this year, while soybeans advanced 0.7 percent to $15.035 a bushel, up 25 percent year-to-date. About 69 percent of the contiguous U.S. states remained under drought conditions as of Oct. 9, according to the National Drought Mitigation Center.

Ethanol producers, set to use about 42 percent of the U.S. corn crop this year, are unlikely to stop output even after prices rose because the gasoline additive remains the cheapest source to satisfy oxygenate requirements for fuel, O’Dea said in a speech. While some lawmakers have asked the Environmental Protection Agency to suspend requirements for ethanol use because of high grain costs, limiting the biofuels program would not be “a silver bullet” for cutting corn demand, O’Dea said.

“The ethanol industry is pretty well positioned from a capital perspective,” O’Dea said. “The industry may slow down, but it’s not going to go away unless we have a complete disaster where there’s no corn.”

Supply concerns may ease next year, O’Dea said. U.S. farmers may plant 95 million acres of corn, less than the 96.9 million acres sown this year while still the second highest since 1944, O’Dea said. Production may total 13.92 billion bushels next year, allowing inventories at the end of the 2013-14 season to rebound to 1.703 billion bushels. The USDA has estimated stockpiles at the end of this season will total 619 million bushels.

To contact the reporter on this story: Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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