Corn Market Seen Tighter as Pigs Erode Reserves at 27-Year High

U.S. corn inventories are the highest since 1988, and that still won’t be enough of a cushion to keep supplies from tightening as demand for livestock feed surges and farmers cut back on acreage.

Stockpiles jumped 15 percent to 4.447 billion bushels as of June 1, a U.S. Department of Agriculture report showed on Tuesday, below the 4.557 billion estimated in a Bloomberg survey of analysts. The main reason for the shortfall? Expanding herds of pigs and other farm animals helped push domestic corn use to the highest in five years, according to AgriVisor LLC.

Pork production in 2015 will rise 7.1 percent from a year earlier, while broiler output will climb 4.6 percent and milk production 1.3 percent, the USDA forecast June 10. At the same time, corn, the nation’s biggest crop, was sown on 88.9 million acres, the smallest in five years and down from a March 31 projection of 89.2 million, the USDA said Tuesday.

“It’s probably a combination of more pigs, chickens and cows eating corn, and USDA overestimating last year’s production,” said Dale Durchholz, the senior market analyst at AgriVisor in Bloomington, Illinois. “Supplies are tighter, and God forbid we have any hot, dry weather in July that damages this year’s crop.”

Feed and residual use for the grain in the three months ended in May climbed 31 percent, according to AgriVisor. The inventory of broilers, dairy cows and hogs suggests that such demand could be as much as 200 million bushels larger than the 5.25 billion bushels projected by the USDA, said Durchholz.

As of Sunday, 68 percent of the corn crop was rated in good or excellent condition in the top 18 producing states, down from 75 percent a year earlier.

Wet fields and declining crop conditions suggest a national yield at 162 bushels an acre, below the USDA’s estimate of 166.8 bushels, Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said Tuesday. That would leave a carryover next year of 1.2 billion bushels, below the 1.771 billion that the USDA forecast on June 10.

“The tightening supply and deteriorating crops in the field are a big change from the outlook a month ago,” Schultz said. “Most livestock producers were waiting for lower prices into the harvest, and now they will be scrambling to extend purchases.”

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