Corn Top Commodity Pick at Morgan Stanley as Supply Plunges

Corn may beat all other commodities in the first half of next year, surging as much as 34 percent to a record as shrinking supply from the U.S. stokes competition among meat and ethanol producers, according to Morgan Stanley.

“There’s a growing probability that you see corn trade up to the $9 to $10 level,” Hussein Allidina, the New York-based head of commodities research, said in an interview. “Demand needs to decrease in order to preserve what we have.”

Corn rose to an all-time high in August as drought killed crops in the U.S., driving output in the biggest supplier to a six-year low and cutting world reserves as a share of demand to the smallest since 1974, according to the U.S. Department of Agriculture. Higher prices may fuel global food inflation as policy makers from Washington to Beijing seek to bolster growth. A rally in corn may help lift soybeans and wheat, Allidina said.

“The market has gotten a little bit relaxed about the supply-demand balance because U.S. exports have been weak,” Allidina said in an interview in Singapore yesterday, selecting natural gas as his second pick for the period. “I worry about being complacent, given how tight things are.”

Corn for March delivery traded at $7.4425 a bushel on the Chicago Board of Trade at 6:55 p.m. in Singapore after rising 0.3 percent. Futures are 12 percent below the $8.49 peak on Aug. 10. Soybeans, which surged to a record $17.89 a bushel in Chicago in September, fell 0.7 percent to $14.8575. Allidina didn’t give first-half forecasts for soybeans and wheat.

Natural Gas

Natural gas may advance to near $5 per million British thermal units by February, from $3.554 today, as demand for heating fuel peaks in the U.S., Allidina said. While cotton and sugar may be the worst performers on global gluts, base metals will depend on economic growth in China, he said.

Goldman Sachs Group Inc. is also bullish on corn. The grain used for feed and ethanol may hit $9 a bushel in three months as stockpiles decline, analyst Damien Courvalin said in a report on Oct. 11. Prices of corn and soybeans are too low to ration demand, Courvalin said, using a phrase the can describe a lowering of consumption in response to higher prices.

“You have a fixed amount of corn that has to last until the next corn crop in the U.S. next year,” said Allidina, who’s tracked commodities for at least 11 years. While futures in Chicago have dropped from the all-time high as importers from Japan, Mexico and Taiwan turned to Brazil, that can’t last, and import demand will switch back to the U.S. in March as shipments from South America begin to decline, Allidina said.

U.S. corn export sales for delivery in the current marketing year dwindled to 11.07 million metric tons as of Nov. 1, from 21.3 million tons a year earlier, the USDA said in a report yesterday.

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