Corn price hits record as US slashes stocks hopes

by Agrimoney.com

Corn prices hit a record high, reinforcing its premium over wheat, after the US heightened fears for supplies by hacking its estimate for world stocks, reflecting weaker US harvest prospects and a belief that estimates for Chinese consumption have been massively underestimated.

Chicago corn for July delivery soared to $7.93 a bushel in early deals, the highest ever for a spot contract, after the US Department of Agriculture, in its latest influential Wasde report, slashed its estimate for world inventories of the grain by 17.3m tonnes.

The downgrade, equivalent to a wiping out the harvests of Canada and Russia, stunned investors.

"The USDA did not fail in surprising the trade once again," Benson Quinn Commodities said.

Matthew Pierce at PitGuru said: "This is a shock. I feel this is an absolute game changer."

"There is no hope of stopping the rally in corn now," he added, referring in particular to the new crop December contract which fell just 1 cent short of rising the maximum allowed in opening trade.

The December lot stood 2.4% higher at $7.11 a bushel as of 16:30 GMT, with the July contract easing back to $7.83 a bushel, a rise of 2.5% on the day.

Chicago wheat, which typically enjoys a premium to corn, stood at $7.43 a bushel for July.

'Near the pipeline minimum'

The inventory downgrade reflected in part a bigger-than-expected cut to hopes for domestic supplies after the USDA - contrary to historical precedent – cut its forecast for domestic corn area to reflect the slow pace of seedings.

USDA US corn data 2011-12, change on last, (market forecast) Area planted: 90.7m acres, -1.5m acres Area harvested: 83.2m acres, -1.9m acres Output: 13.20bn bushels, -305m bushels Feed use: 5.0bn bushels, -100m bushels Carry-in stocks: 730m bushels, unchanged, (+24m bushels) Year-end stocks: 695m bushels, -205m bushels, (-76m bushels)

Typically, revisions are not made until at least a late-June acreage report.

The estimate for plantings was cut by 1.9m acres to 90.7m acres - albeit still 2.5m acres more than last year's sowings - with a further 400,000 acres of sown crops estimated lost to the floods around the Mississippi, Missouri and Ohio rivers.

The US harvest was pegged at 13.2bn bushels (335.5m tonnes), 305m bushels (7.7m tonnes) less than previously forecast.

The decline fed through into a cut of 205m bushels (5.2m tonnes), to 695m bushels (17.7m tonnes), in the estimate for US stocks at the close of 2011-12, a figure a little below market forecasts.

"This is near the pipeline minimum of 600m-650m bushels," US Commodities said.

"The market now has no margin of error for the balance of the summer. [Price] breaks should be well supported on corn."

Wayward Chinese data

However, the downgrade also reflected a massive change to forecasts for corn in China, where official data have gained a reputation for inaccuracy, in part because of a tendency among provincial authorities to manipulate statistics to improve their case for handouts from Beijing.

Selected USDA world corn data 2011-12, and change on last World output: 866.14m tonnes, -1.55m tonnes World carry-in inventories: 117.44m tonnes, -4.75m tonnes World year-end inventories: 111.89m tonnes, -17.25m tonnes Chinese output: 178.0m tonnes, +6.0m tonnes Chinese consumption: 181.0m tonnes, +13.0m tonnes Chinese year-end inventories: 51.01m tonnes, -12.0m tonnes

The USDA, while lifting its estimate of last year's Chinese corn harvest by 5.0m tonnes, and adding 6.0m tonnes to its forecast for the forthcoming crop, estimated that its figures on consumption were even further out – by 8m tonnes in the current season and 13m tonnes in 2011-12.

Kathleen Merrigan, the USDA's acting secretary of agriculture, gave no explanation for the revisions to China's consumption data beyond saying they were down to "both feeding and industrial use".

The production upgrades were attributed to a bigger estimate for sowings, with yield estimates held steady.

"Data from the Chinese government indicates that corn area increased by more than 4%in 2010-11 as farmers reportedly expanded corn acreage in response to higher relative profits for corn and government policies that encouraged grain production," USDA analyst Paulette Sandene said.

Seven weeks' supplies

World stocks were estimated closing 2011-12 at 111.9m tonnes, down from a May estimate of 129.1m tonnes.

Factoring in use, the revision means that the world is expected to end the season with stocks equivalent to last less than seven weeks, compared with last month's assessment of nearly eight weeks.

That would represent the tightest supplies for 16 years, and compared with stocks equivalent to well over three months' consumption which the world held at the turn of the century.

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