Traders hoping that the US will cut its estimate for corn sowings later on Thursday, expectations which fuelled a jump in prices, will be disappointed, given the potential for growers still to change their minds, veteran analysts have said.
Forecasts that the US Department of Agriculture will, in its latest flagship Wasde crop report, reduce its estimate of domestic corn sowings, helped a 4% jump in Chicago corn futures on Wednesday, with prices rising the exchange maximum at one point.
"It would be unusual [for the USDA] to do so in the June report, but this is an unusual year," Mike Mawdsley at broker Market 1 said.
Wet weather meant sowings were, as of early May, running at their slowest pace in 16 years, with some traders believe that plantings may finish up 5m acres short of the 92.2m acres that the USDA initially pencilled in.
However, Jerry Gidel at North America Risk Management Services (Narms) forecast that officials would, as they have historically, wait for the results of a plantings poll of farmers, results of which will be published on June 30, before changing acreage estimates.
"We expect the USDA to wait another three weeks and then use their survey results, rather than making a change now that might not follow their survey results," Mr Gidel said.
Australia & New Zealand Bank analysts said that while a downgrade was "not out of the question, we view it likely that the USDA will wait" to update its estimates.
At broker PFGBest, Tim Hannagan advised investors to be "careful" over forecasting a downgrade in sowings, given that planting was still going on, and urged caution over speculation that the USDA might cut its estimate for yields too, thanks to the plantings delay.
"Weather could bring a perfect growing season. There's plenty of time [for crops] to improve," he said.
Such assessments prompted PFGBest to forecast that the USDA will leave its forecast for domestic corn inventories at the close of 2011-12 relatively high, at 850m bushels, despite demand proving better than many investors had expected, in the face of high prices.
The average estimate is for a 771m-bushel figure.
"It's risky to assume the government will get ahead of itself on estimates being lower," Mr Hannagan said.
Narms forecast the figure the USDA will come in with a 900m-bushel estimate, unchanged on the existing figure.
Besides the prospect of unchanged seeding and yield estimates, "the USDA doesn't traditionally make many adjustments to its new crop corn demand levels just one month after issuing them each year", Mr Gidel said.
'Sticky ethanol demand'
Expectations for corn demand have been stocked by some surprisingly strong cattle data, with feedlots hiking animal numbers in April, resilient US export sales and a renewed rise in activity at biofuel plants converting the grain into ethanol.
US production of the biofuel looked set for "another record" quarter, "after the past three weekly ethanol reports revealed daily average production rates of over 900,000 barrels per day after a sluggish April when some maintenance downtime occurred", Mr Gidel said.
At Commonwealth Bank of Australia, Luke Mathews said: "The fundamental issue with the corn market is that of sticky ethanol demand for the grain, which has shown little signs of abating, even in the face of record high corn prices."
Data on Wednesday showed US ethanol output at its highest last week since January.
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