The US Department of Agriculture has cut hopes for a rebuild in crop stocks in 2011-12 - with corn inventories to stay below 1bn bushels – presenting a squeeze sufficient to give farmers record prices for major crops.
The revisions looks set to bring a firmer opening to live trading in Chicago, with the immediate market reaction in Paris to send March wheat from E249 a tonne before the announcement to E253 a tonne.
Joseph Glauber, the USDA's chief economist, forecast "continued high costs" for grains as even a jump of 9.8m acres in American sowings of major crops expected for this year – the largest increase for 15 years - fails to ease significantly tight supplies.
"Even with additional supplies expected this year, it is likely that the tight stocks to use situation will not be entirely mitigated over the course of one or even two growing seasons," he told a USDA forum in the US.
The squeeze, while set to keep margins for livestock producers at "low levels", will present growers with even bigger prices, which will in corn, cotton, soybeans and wheat reach record levels.
Cut to corn stocks guess
The growth in sowings would be led by corn, Mr Glauber said, firming up a preliminary USDA forecast revealed last week, in the so-called "baseline" report, of a rise of 3.8m acres to 92m acres in sowings.
However, even assuming a trend yield of 161.7m bushels per acre, bringing the total harvest to an all-time high of 13.7bn bushels, a significant rebuild in inventories would be prevented by strong exports and firm demand from ethanol producers
Favourable tax treatment means "the incentive for ethanol blending remains strong… and ethanol [is] expected to remain attractive priced relative to gasoline", Mr Glauber said.
US corn stocks will see a "modest" increase to 865m bushels over 2011-12m a cut of 262m bushels on last week's estimate, and representing a historically "tight" level of 6.4% of consumption.
'Tight as well'
Soybean stocks will "remain tight as well", Mr Glauber said, despite a fall in exports in the face of "renewed competition" from Argentina and Brazil.
With sowings limited to a small rise to 78m acres by the rush for corn, inventories will rebuild by a modest 20m bushels to 160m bushels.
"The stocks-to-use ratio is still estimated to be below 5%, indicating a tight market," he said.
Yield losses
Wheat will end 2011-12 with a stocks-to-use ratio – a key measure of the readiness of a crop's supply and therefore its price potential – of 28.3%, a relatively lax figure, if the lowest since 2007-08 in the run up to the last crop price spike.
Nonetheless, the figure is lower than the 30.4% proposed in the preliminary estimates, and reflected some allowance for the impact of a dry weather on southern Plains states.
"Despite higher planted acreage, wheat production will be affected by dry weather since last fall in the hard red winter growing region and by a return to more normal yields this year," Mr Glauber said.
Price forecasts
He added that, for wheat, the average farmgate price would reached a record $7.50 a bushel, "although prices will likely moderate in the late summer and fall as spring planted crops in the Northern Hemisphere come to market".
Indeed, stronger competition in export markets, after a series of poor crops in 2010-11 will limit US wheat exports to 1.15bn bushels next season, a fall of 12%.
Farmers will receive a record $5.60 a bushel for corn, of $13.00 a bushel for soybeans, and of 110 cents a pound for cotton.
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