U.S. corn stockpiles are poised to surpass 1 billion bushels a little over a year from now after farmers ramped up acreage to capitalize on record-high prices for the grain, several market analysts say.
Corn supplies at the end of the 2011-12 marketing year next August are expected to rise to 1.013 billion bushels, based on the average estimate in a survey of analysts, according to AgTraderTalk.com. That would be an increase of about 11 percent from the 911 million bushels estimated to be on hand at the close of the 2010-11 marketing year Aug. 31.
The estimates were compiled in anticipation of the U.S. Department of Agriculture’s next monthly Supply and Demand update, scheduled for 7:30 a.m. Central time July 12.
Expanding corn supplies stem from unexpectedly high corn plantings the USDA detailed in its acreage report last month. The acreage report triggered a steep sell-off in corn futures and signaled livestock producers will see a reprieve from the soaring feed costs that squeezed margins much of this year.
Corn futures in Chicago have fallen as much as 23 percent from an all-time high of $7.99 ¾ a bushel reached June 10, and may have further to fall, some analysts believe.
Recent corn price action “does suggest a major market top is in place,” analyst Jim Wyckoff said in a July 8 report. “It will likely take a major weather scare in the U.S. Corn Belt in the coming few weeks to push nearby corn prices back above $7 a bushel.”
In trading July 8, corn futures for delivery this month rose 22 ¼ cents to $6.72 ¼ a bushel. December futures, which reflect expectations for this year’s harvest, rose 21 ½ cents to $6.37.
Boosting corn stockpiles above 1 billion bushels would, if anything, signify a psychological shift for the grain market, which grew increasingly skittish this spring as supplies shrank and wet weather delayed fieldwork. As recently as a month ago, corn supplies were projected to drop to a 15-year low by August, at 730 million bushels, according to the USDA’s June Supply and Demand report.
Many analysts now expect the USDA will hike its supply forecasts, especially with high acreage setting the stage for a record corn harvest.
“The violent reaction downward (in corn prices) certainly indicates the trade believes that corn stocks are not going to be nearly as tight as earlier supply/demand reports indicated,” Archer Financial Services analyst Dennis Smith said in a report.
In the June 30 acreage report, the USDA said farmers seeded an estimated 92.28 million acres to corn this year, up 4.6 percent from 2010 plantings and the second-highest total in the past 67 years.
Barring a major drought or other weather problems, farmers are expected to haul in a bountiful harvest this fall.
Informa Economics, Inc., a Memphis-based consultant, estimated the U.S. corn harvest at 13.76 billion bushels and average yields at 162.5 bushels an acre, trade sources said July 8. The projected harvest would be up almost 11 percent from 12.45 billion bushels in 2010 and top the current record of 13.09 billion bushels in 2009.
While the supply outlook has loosened, demand for corn remains strong, with the recent price declines spurring purchases from big foreign buyers, including China. Though corn prices may have room to drop further, the market likely will remain historically high into 2012, analysts say.
Jason Ward, an analyst with Northstar Commodity Investment Co. in Minneapolis, cautioned against any complacency among corn users, saying livestock feeders should be looking for opportunities to lock in grain supplies at cheaper prices to protect margins.
“Our cash sources are telling us that corn is very tight in the near-term and ethanol plants are paying close to $7 cash to actually buy corn,” Ward said in a July 8 e-mail. “My message to livestock producers would be, don’t go to sleep thinking grains will get cheaper.”
Corn prices are still almost double levels from a year ago, and remain far above an average of $2.28 from 2000-06, based on front-month futures.
“Demand is going to be stronger than you think on the pull-back,” Ward said. “China is after this corn.”