Corn Rises as U.S. Export Demand Gets a Boost From Brazil’s Woes

  • Brazil’s crop hit by drought, supporting U.S. grain shipments
  • Cotton jumps to two-year high as USDA cuts global supply view

Corn futures jumped after the latest U.S. government forecast for domestic inventories was less than expected, indicating that lower production in Brazil is boosting demand on the international grain market for American exports.

U.S. stockpiles will be 2.081 billion bushels as of Aug. 31, 2017, the end of the marketing year, U.S. Department of Agriculture data showed Tuesday. While that’s more than forecast by the USDA last month, it’s below the average estimate of 2.213 billion in a Bloomberg survey of analysts.

The world is awash with grains after several years of bumper crops, and U.S. stockpiles are expected to grow from the prior season. But with its latest monthly World Agricultural Supply and Demand Estimates (WASDE) report, the USDA is signaling that the U.S. is likely to remain a key supplier to global markets. Exports from the country, the biggest corn grower and shipper, are now seen at 2.05 billion bushels in the next marketing year, up from the 1.95 billion estimated last month. If the new projection is realized, it would be the largest amount shipped in nine years.

The USDA “is saying that demand for U.S. corn is improving from both U.S. livestock feeders and overseas buyers,” Don Roose, president of U.S. Commodities in West Des Moines, Iowa, said in a telephone interview. “Corn is now competitive on the world market and that puts a floor under prices.”

Corn futures for September delivery in Chicago erased losses after the report was published and closed 1.1 percent higher at $3.5225 a bushel.

The USDA slashed its estimate for corn production in Brazil during the current marketing year to 70 million metric tons, citing the adverse impact of the early end to the rainy season in much of the central region of the country. That projection is almost 10 percent less than what it had estimated last month and is close to the Conab forecast issued last week. The USDA also lowered its production estimate for the country’s next corn crop.

The USDA “came fairly close to adopting the Brazil corn production estimate, which had a whole domino effect on the corn balance sheet,” Jim Gerlach, president of A/C Trading in Fowler, Indiana, said in a telephone interview. “Between the Brazil cuts and cheap prices, we’re going to use more.”

U.S. soybean export demand is also seen rising, with shipments forecast to increase 7 percent to a record 52.25 million tons in the season that begins in September. Domestic inventories are projected to fall 17 percent year-over-year before the 2017 harvest.

Soybean futures for November delivery rose 3 percent to close at $10.87 a bushel in Chicago.

“Soybean inventories are tight enough that the market will stay focused on weather” into the key yield development period in August, Roose said.

Other highlights from the WASDE report:

  • The agency lowered its forecast for global cotton stockpiles in 2017 to 91.3 million bales, less than the lowest estimate in a Bloomberg survey and down from 94.7 million bales projected in June. The latest number would be a five-year low. On ICE Futures U.S. in New York, cotton for December delivery surged by the exchange limit of 3 cents to settle at 70.78 cents a pound, the highest for a most-active contract since July 8, 2014. The 4.4 percent gain was the biggest since Aug. 12.

  • World wheat reserves before the 2017 Northern Hemisphere harvest are seen at 253.7 million metric tons. While the number is a record high, it trails the USDA’s June estimate and the average analyst estimate of 259.2 million. Wheat futures for September delivery climbed 1.9 percent to close at $4.385 a bushel in Chicago.
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