Corn Rises on Sign Higher Cost Fails to Slow Demand; Wheat Gains
April 08, 2011, 4:18 PM EDTBy Jeff Wilson
April 8 (Bloomberg) -- Corn rose for the first time in three sessions on signs that the highest prices since 2008 have failed to slow demand for ethanol and animal feed. Wheat gained as adverse weather threatened U.S. crops.
U.S. corn reserves before the harvest will fall 60 percent to 675 million bushels, unchanged from last month’s forecast and the lowest since 1996, the Department Agriculture said today. Futures have more than doubled in the past year, and yesterday touched the highest since July 2008. Cattle prices reached a record this week, and oil touched a 30-month high.
“Although the USDA left its U.S. corn inventory projections unchanged, we reiterate our expectation for further tightening in the 2010-2011 corn balance on continued strong feed and ethanol demand,” Goldman Sachs Group Inc. analysts Damien Courvalin and Allison Nathan said in a report today. The analysts reiterated an April 1 forecast for corn to rise 12 percent in three months.
Corn futures for May delivery rose 9 cents, or 1.2 percent, to close at $7.68 bushel at 1:15 p.m. on the Chicago Board of Trade. Most-active futures rose 4.3 percent this week, the fourth straight weekly gain. The grain touched a 33-month high of $7.7325 yesterday as global production trailed gains in demand.
Wheat futures for July delivery rose 23.25 cents, or 2.9 percent, to $8.3225 a bushel in Chicago, the first gain in four days. The contract jumped 4.6 percent this week. Most-active futures climbed 72 percent in the past year as drought spurred Russia to ban exports, while floods eroded crops in Canada and Australia.
Winter-Wheat Crop
The condition of the U.S. winter-wheat crop on April 3 was worst in nine years as dry weather persists in the southern and central Great Plains, the USDA said this week. About 34 percent of the area that grows hard red winter wheat was in drought conditions, according to T-Storm Weather LLC in Chicago.
U.S. winter-wheat yields are likely to be as much as 9.3 percent below average this year based on similar years when La Nina weather conditions were weakening, as they are this year, Mike Tannura, the president of T-Storm Weather, said today in a note to clients. Yields in 1996 were the third lowest in 50 years, and in 1989 they were the sixth lowest, Tannura said.
Analysts were surprised that the USDA failed to reduce its estimate of domestic corn reserves. A Bloomberg News survey showed an expected cut to 589 million bushels, after the government last week estimated that March 1 reserves fell 15 percent from a year earlier.
Corn Inventories
On March 1, corn inventories dropped to 6.523 billion bushels as demand rose to a record in the December-to-February quarter, the USDA said March 31. Supplies held by farmers fell 26 percent from a year earlier and represented 52 percent of total U.S. stockpiles, the smallest for the date since before 1960, USDA data showed.
“Further reported declines in corn stocks are not politically desirable as rising corn prices would undercut public support for subsidizing ethanol, which is the core element of the White House’s biofuels policy,” Don Carson, a New York-based senior analyst for Susquehanna Financial Group LLC, said in a report today. “Grain prices need to rise in order to ration demand.”
Corn, the main ingredient in livestock feed, is the biggest U.S. crop, valued at $66.7 billion in 2010, government figures show. Wheat is the fourth-largest, behind soybeans and hay, at $13 billion.
--Editors: Steve Stroth, Millie Munshi
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.
