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Posted on April 8, 2011
By TOM POLANSEK
Federal forecasters left projected end-of-season corn supplies unchanged, surprising traders who have bid futures to record highs on concerns strong demand is draining inventories.
The estimate ran counter to a separate report last week from the U.S. Department of Agriculture that showed a larger-than-expected drop in grain supplies over the winter. The inventory data from March 31 sent corn futures to an all-time record above $7.70 a bushel.
The USDA in Friday’s monthly crop report also left its estimate for soybean supplies unchanged, while slightly lowering its outlook for wheat inventories. Corn and wheat futures were nearly flat on the Chicago Board of Trade as traders speculated the USDA is likely building into its corn-supply forecast a decline in demand that hasn’t yet been seen.
Leslie Josephs has details of the government’s latest crop report indicating the USDA’s outlook for corn and cotton, which could have big implications for food and clothing.
More U.S. Corn Prices Likely to Curb Export Demand Heard: High Corn Prices Are Here to Stay
“We believe this result is optimistic, and continue to see ending corn stocks below the USDA,” analysts at Morgan Stanley wrote in a note to clients.
Friday’s report provided a clearer direction for the cotton market as the USDA cut its estimate for end-of-season U.S. inventories to a record low. Futures rose as high as $2.1240 a pound in early trade but gave back those gains, slipping 1.1% to $2.0584 a pound on the IntercontinentalExchange.
At the Chicago Board of Trade, corn for May delivery traded one cent higher at $7.60 a bushel, while soybeans for May delivery rose 1.4% to $13.82 a bushel. Soft red winter wheat for May delivery was nearly flat at $7.735 a bushel.
Cotton mills likely haven’t been deterred by current prices.
The USDA estimated corn supplies as of Aug. 31 at 675 million bushels, unchanged from a month earlier and still a 15-year low. Traders almost universally predicted ahead of the report that the USDA would slash the supply outlook.
Federal forecasters accounted for the steady estimate by raising the outlook for corn used to produce ethanol by 1% to 5 billion bushels and reducing forecast animal feed and residual use by 1% to 5.15 billion bushels. Residual use accounts primarily for grain that is in transit on barges and railcars, and not in elevators or farm bins.
The increase in corn going to ethanol production was predicted by traders, but there was a general expectation that the USDA would sharply lower its forecast for overall corn stocks by increasing forecasts for feed use or exports to bring end-of-season estimates in line with the March 31 inventory report.
Traders and analysts speculated the USDA may have been reluctant to cut its corn supplies forecast, not wanting to stoke fears about dwindling inventories.
“I know the government might be shutting down, but it looks like they shut down early on this report,” said Jason Britt, president of Central States Commodities, a brokerage in Missouri.
The USDA left its estimate for U.S. soybean supplies unchanged from March at 140 million tons, while analysts had expected a slight decrease. The agency made a slight cut in U.S. wheat supplies to 839 million bushels, a surprise since expectations were for an increase due to the sluggish pace of shipments to foreign buyers.
Globally, the USDA predicted China will import more corn in the current crop year, raising its forecast to 1.5 million tons from 500,000 tons a month ago. Traders and analysts have speculated the Asian nation is back in the market, but Friday’s report said there was no confirmation of new Chinese purchases.
“The increase in expected China imports reflects the short-term decline in world corn prices in mid-March that created a buying opportunity for Chinese importers,” the USDA said.
The USDA didn’t alter its forecast for Chinese soybean imports, leaving the prediction at 57 million tons. The U.S. is a major soybean supplier of China, but competition from Brazil and Paraguay is heating up, the USDA said in the monthly report. Brazil is now forecast to produce 72 million tons of soybeans, up from last month’s USDA prediction of 70 million tons.
As for cotton, stockpiles of the fiber at the 2010-11 season’s end in July will likely hit a record low of 1.6 million bales, a sign that mills haven’t been deterred by current prices.
“It’s something that we’ve never seen before,” said independent cotton analyst Mike Stevens. “It underscores the point that if we have weather problems next season, anywhere in the world, we’re going to see explosive prices.”
-Bill Tomson, Ian Berry and Leslie Josephs contributed to this article.
Write to Tom Polansek at email@example.com