Corn inventories in the U.S., the biggest grower and exporter, are poised for the largest expansion since at least 1960 as production rebounds to a record from last year’s drought.
Stockpiles will surge 167 percent to 51.77 million metric tons (2.038 billion bushels) by next year’s harvest, according to the average of 31 analyst estimates compiled by Bloomberg. Output will rise 31 percent to 358.7 million tons this season, the survey showed. Goldman Sachs Group Inc. says futures will drop to $5.25 a bushel in six months, 19 percent less than the $6.4875 traded on the Chicago Board of Trade today.
After the worst U.S. drought since the 1930s drove prices to a record $8.49 in August, corn plunged 26 percent to join wheat and soybeans in bear markets, curbing global food costs. Futures are still almost double their average over the past two decades, enough to spur growers from Brazil to Ukraine to increase output and erode the U.S. share of exports.
“The U.S. will have substantially more supplies next year,” said Douglas Carper, the principal of Omaha, Nebraska-based DEC Capital Inc., a commodity trading adviser. “If we have anything close to the estimates, the corn market is headed substantially lower, perhaps sub-$4.50.”
Futures tumbled 7.1 percent since the end of 2012, the third-worst start to a year in at least a decade. The Standard & Poor’s GSCI gauge of 24 commodities fell 2 percent, while the MSCI All-Country World Index of equities advanced 10 percent. Treasuries returned 0.4 percent, a Bank of America Corp. index shows.
Domestic farmers plan to sow the most acres since 1936, according to the U.S. Department of Agriculture, which updates its forecasts tomorrow. The additional supply of 84.84 million tons projected in the Bloomberg survey is more than the 27-nation European Union consumes in a year, USDA data show.
U.S. shipments are retreating, with 55 percent less corn sold since the start of the season on Sept. 1, government data show. Annual sales are forecast by USDA to be the lowest since 1972, which would be the biggest drop since at least 1960.
“We should see U.S. and world supplies expand and lower prices,” said Fiona Boal, the director of commodity research for Argonaut Management LP in New York, which oversees about $1 billion of assets. “Historically, $4 corn is a high price with these types of supplies.”
With the harvest five months away and most Midwest fields still waiting to be sown, a return to drier weather may limit production. USDA forecasts for record crops in each of the past three years proved wrong because of drought or heat, including a 13 percent decline in the 2012 harvest that was the largest slump in almost two decades.
Planting this year is off to the slowest start since 1984 because of rain, snow and unusually cold weather, government data show. About 12 percent of the crop was in the ground as of May 5, less than the 56 percent average of the prior five years, the USDA said May 6.
“Every day that planting is delayed, the crop is at greater risk of pollinating in the middle of the hottest temperatures of the year,” said Jacquie Voeks, a senior adviser at farm marketer Stewart-Peterson Group in West Bend, Wisconsin. “The crop will get planted in less-than-ideal conditions, and that raises concern about below-normal yields.”
Farmers can get the best yields in Iowa, the biggest U.S. grower, by planting from April 12 to May 18, according to Roger Elmore, an agronomist at Iowa State University in Ames. After May 20, every day that planting is delayed may cut yields by as much as a bushel an acre, he said. Farmers reaped 139 bushels an acre last year, compared with the average of 170.1 bushels in the prior 10 years.
Stockpiles on Aug. 31, before this year’s harvest, will be the lowest relative to consumption since 1995, USDA data show. To secure supply now, processors are paying the highest premiums ever for this time of year. In Cedar Rapids, Iowa, buyers paid an average of 65.4 cents a bushel more than July futures for deliveries this month, from 40.76 cents a year earlier, according to data from DTN.
Last year’s surge in crop prices and a record $17.2 billion in insurance payouts to farmers with ruined fields will help boost U.S. farm income by 14 percent to $128.2 billion this year, the USDA estimates. Inflation-adjusted farmland prices in five Midwest states rose 14 percent in 2012, the third largest gain in 35 years, the Chicago Federal Reserve Bank said in February.
Soil moisture is improving after winter snowstorms and rain, data from the U.S. Drought Monitor show. About 3 percent of the area covered by nine Midwest states had severe to exceptional drought on April 30, compared with 30 percent on Jan. 1. The dryness will ease through July 31 in the western Midwest and Great Plains, the U.S. Climate Prediction Center said May 2.
Argentina, Brazil and Ukraine combined will produce a record 121.4 million tons this year, up 33 percent since 2009, USDA data show. Global output will jump 13 percent in the year that begins July 1 to an all-time high of 966.5 million tons, Memphis, Tennessee-based agricultural researcher Informa Economics Inc. said in a report May 3. World reserves may jump 20 percent before the 2014 harvest, the most since 2005, according to the Bloomberg survey of analysts.
The U.S. share of production fell to 32 percent in 2012, from 38 percent in 2009, and it accounted for 23 percent of exports, from 52 percent, government data show. Brazil may top the U.S. as the biggest shipper this year.
Rising output will drive corn to $5 in the next six months, Citigroup Inc. said in a May 7 report. The ratio of stockpiles to consumption will almost double to 14.3 percent next year from 7.8 percent forecast in 2013, the bank estimates.
A United Nations index of global grain costs has dropped for seven consecutive months. Hedge funds and other speculators reduced bets on higher corn prices by 87 percent since August, U.S. Commodity Futures Trading Commission data show.
Demand from ethanol producers is weakening as U.S. gasoline consumption for this time of year slips to the lowest in at least the past decade, government data show. The amount of corn used to make the fuel will drop 9.2 percent to 115.6 million tons in the year ending Aug. 31, the USDA estimates.
After record ethanol exports in 2011 slowed in late 2012, U.S. shipments may decline this year because importers can buy cheaper sugar-based fuel from Brazil, said Michael Swanson, a senior agricultural economist for Wells Fargo & Co. in Minneapolis. Sugar prices retreated 51 percent since reaching a 30-year high in February 2011 on ICE Futures U.S. in New York.
“We have an outlook for a record U.S. crop and questionable demand,” Swanson said. “A potential double punch to the corn-market price outlook.”