Bloomberg News

Corn-Crop Delays Signal Tightest World Supply Since 1974

June 08, 2011

(Adds today’s corn-price increase in fifth paragraph.)

June 8 (Bloomberg) -- Wet weather that delayed corn planting in the U.S., the world’s largest exporter, may send global inventories to their lowest in 37 years, signaling higher costs for consumers and livestock producers.

More than one-third of Midwest fields were planted after the mid-May target for optimal growth because of excessive rain, and Ohio farmers as of June 5 were the furthest behind since 1989, with 58 percent sown, government data show. Goldman Sachs Group Inc. said June 6 that the disruptions increase the “potential for a shortfall.”

Corn futures more than doubled in the past year to $7.365 a bushel in Chicago yesterday and may top $9 if conditions worsen, according to Morgan Stanley. The rally is boosting costs for meat producers including Tyson Foods Inc. and ethanol makers such as Poet LLC, as global food inflation tracked by the United Nations accelerated in nine of the past 11 months.

“There’s potential to take out record highs this summer for corn,” said Richard Feltes, a vice president of research at R.J. O’Brien & Associates, a broker in Chicago. “There’s a lot riding on the need for our weather to normalize and not be characterized by this regime of extremes that’s really been the pattern since last fall.”

Corn futures for July delivery surged 27.5 cents, or 3.7 percent, to $7.64 a bushel on the Chicago Board of Trade, the biggest gain since May 18. Earlier, the price advanced by the exchange’s 30-cent limit to $7.665.

Cutting Forecast

In a report tomorrow, the U.S. Department of Agriculture probably will cut its forecast of global corn reserves before this year’s Northern Hemisphere harvest to 121.46 million metric tons, according to a Bloomberg News survey of 15 analysts. That would be down 17 percent from last year, the biggest drop since 1994, and would leave supplies at 14.5 percent of estimated consumption, the lowest ratio since 1974, government data show.

Analysts also are expecting the USDA may cut its estimate of reserves before the 2012 harvest. While the Bloomberg survey showed corn inventories probably will rebound to 127.21 million tons next year, that would be down from a May forecast of 129.14 million.

Floods damaged as much as 6.8 million acres of farmland across the South and Midwest, according to the U.S. Army Corps of Engineers, an area equal to the size of Massachusetts. From the Mississippi River Delta region, where heavy rains and snow melt from the north forced governments to open levees, to the pathways of the Missouri and Ohio rivers, high waters have wrecked farmland.

Unplanted Fields

“The weather has definitely challenged the ability of farmers to sow their crops,” said Hussein Allidina, the head of commodities research at Morgan Stanley in New York. “That’s going to limit ultimately the amount of acres that get planted.”

About 5.5 million acres, or 6 percent of the 92.178 million that corn farmers said they intended to plant this year, were still waiting to firm for heavy farm machinery as of June 5, the USDA said. An estimated 79 percent of the plants that were sown emerged from the ground, below the 90 percent average for the past five years.

Yield potential begins to decline in fields planted after the middle of May because crops reproduce during the peak of summer heat in July and August, according to Iowa State University. Excessive soil-moisture supplies from heavy rains from Arkansas to Ohio may leave plants with shallow root systems and vulnerable to yield losses.

Volatile Prices

“We needed a perfect growing season to rebuild inventories to a more comfortable level,” said Alexander Bos, an agricultural commodity strategist for Macquarie Group Ltd. in New York. “Prices will be volatile and trend higher for an extended period of time to slow demand and provide incentives for farmers to expand acreage next year.”

Crops may recover before the harvest begins in the Midwest, the biggest growing region, in September and October.

“There’s still a chance to have reasonably good yields if we can normalize summer weather and stay away from an earlier- than-normal frost rate this fall,” R.J. O’Brien’s Feltes said. “We are going to need to extend the growing season to bring this late crop home.”

Prospects have dimmed for U.S. crops as parts of China, the second-biggest corn grower, had the least rain in a century and some European regions are the driest in 50 years. In Canada, rain has slowed grain planting.

Global output of coarse grains such as corn and barley will rise 3.9 percent to 1.165 million tons, about equal with demand, the United Nations’ Food and Agriculture Organization said yesterday.

‘Wild Card’ Weather

Weather across the Midwest during the next three months is the “wild card” for final U.S. yields after the slow start to planting, said Jerry Gidel, a market analyst for North American Risk Management Services Inc. in Chicago.

“World supplies are so tight that any aberration in the weather the remainder of this summer will have a dramatic impact on corn” prices, Gidel said. “There’s no margin of error.”

Global wheat inventories may also be reduced because of dry weather in the U.S., parts of Europe and China, analysts said.

Wheat stockpiles probably dropped to 182.1 million tons on June 1, down from last month’s USDA estimate and 7.2 percent lower than a year earlier, according to last week’s Bloomberg survey. Inventories at the end of next year may be drop to 178.86 million tons, the lowest in three years, the analysts said.

Reduced Output

The U.S. winter-wheat harvest, which began last month, probably will total 1.391 billion bushels, the least in five years, according to the survey. Hot, dry weather from Texas to Colorado reduced production from 1.424 billion harvested last year even after farmers planted 10 percent more from September to November.

Higher commodity expenses led food makers including General Mills Inc. and McDonald’s Corp. to boost prices to consumers. Food imports will rise 21 percent to a record $1.29 trillion this year, the UN Food and Agriculture Organization said in a report yesterday.

Tyson Foods, based in Springdale, Arkansas, said last month that higher spending on animal feed eroded gains in beef and chicken prices. Grain costs in fiscal 2011 will rise almost $500 million from a year earlier, the company said in a statement.

McDonald’s, Hormel

Oak Brook, Illinois-based McDonald’s, which will report earnings later today, boosted menu prices in the U.S. by 1 percent in March, Chief Financial Officer Peter Bensen said on an April 21 conference call. Hormel Foods Inc., based in Austin, Minnesota, said May 25 that it expects to face higher commodity costs and will continue to raise prices.

“The high-price situation is not something that’s just going to vanish over one season,” said Abdolreza Abbassian, a senior economist at the Rome-based FAO. “The fundamentals are still what they are, a very tight situation for almost all commodities.”

--With assistance from Rudy Ruitenberg in Paris. Editors: Steve Stroth, Millie Munshi

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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