Bloomberg News

Wrong Reasons Hurt Corn, Says UN, as Morgan Stanley Bullish

September 28, 2011

(Updates price in fifth paragraph.)

Sept. 28 (Bloomberg) -- A plunge in corn prices may mislead growers that world stockpiles have returned to normal, spurring farmers to cut acreage and exacerbating a shortage of the grain used in foods, fuels and animal feed, the United Nations said.

“We’re seeing a downtrend in prices for the wrong reasons,” Abdolreza Abbassian, senior economist at the Food & Agriculture Organization, said in an interview. “The medium- term response would be a shortage, so prices will rise.”

Corn shed 18 percent from this year’s high in June to yesterday’s close as investors sold commodities from metals to farm products on concern that the global recovery was faltering. The decline helped to ease near-record food prices, curbing inflationary pressures as governments seek to boost growth.

Abbassian’s comments reflect concern the rout may hurt even commodities that face supply constraints, obscuring so-called price signals that producers use to help make decisions about future output. The corn market “is not positioned” for a U.S. Department of Agriculture estimate due Sept. 30 that may show U.S. stockpiles fell more than forecast, Morgan Stanley said.

Corn rallied to a three-year high of $7.93 per bushel on the Chicago Board of Trade on June 9, buoyed by tightening supplies and increased worldwide demand, before ending at $6.5225 yesterday. The December-delivery contract was at $6.4825 at 5:29 p.m. in Singapore after dropping 0.6 percent.

U.S. Reserves

U.S. stockpiles may have declined to 882 million bushels as of Sept. 1, about 38 million bushels fewer than the USDA’s latest estimate, Morgan Stanley analysts led by Hussein Allidina wrote in the report e-mailed today. That would be the smallest total for period since 1995, and down from 1.7 billion bushels a year ago, according to USDA data.

“The quarterly stocks report could refocus the market on tight fundamentals after two weeks of macro-driven price weakness,” Morgan Stanley said in today’s release. “We expect a moderately bullish report for corn.”

Global corn production will trail demand for a third straight year in 2011-2012, according to a USDA forecast on Sept. 12. World stockpiles may plunge to 117.4 million metric tons at the end of the 2011-2012 season, a five-year low, the USDA said.

The corn market “is not appropriately pricing in the tightness in the U.S. corn balance,” Allidina and analysts also wrote in an earlier report, issued on Sept. 26 and that maintained a forecast of $7.25 per bushel for this season.

‘News of Recovery’

“What happens is, if tomorrow, all of a sudden, we got a stimulus package, we get news of recovery, immediately the attention will go to supply,” Abbassian said in an e-mail to Bloomberg News yesterday.

The next outlook from the USDA for worldwide supply and demand, which is due in October, may show smaller acreage in the U.S., cutting the nation’s harvest to 12.37 billion bushels, the lowest since 2008-2009, Morgan Stanley said in the Sept 26 report. The U.S. accounts for about 45 percent of world exports.

Investors may price in a possible smaller U.S. harvest, sending prices to as much as $8 per bushel, Dan Cekander, director for grain research at Newedge USA LLC, said Sept. 20. A day later, the Federal Reserve cited “significant downside risks” to the U.S. outlook, helping wipe out this year’s gains in the Standard & Poor’s GSCI Index of 24 commodities.

--Editors: Jake Lloyd-Smith, Richard Dobson

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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