US corn supply dropping fast on drought damage, declining prices

Increased demand coming from livestock producers

The U.S. corn supply is dropping the fastest in 17 years thanks to a combination of drought damage, which has exceeded government forecasts, and five months of declining corn prices that have resulted in increased demand from livestock producers, according to reports.

Inventories on December 1, 2012, were 15 percent lower than the same time in 2011, at 8.22 billion bushels, the smallest post-harvest stockpile since 2003, according to the average of 26 analyst estimates compiled by Bloomberg. Goldman Sachs Group Inc., Morgan Stanley and Macquarie Group Ltd. Said they expect prices to rebound at least 17 percent to $8.14 per bushel in 2013. While futures rose to a record $8.49 in August 2012 as the drought spread, they fell 18 percent as U.S. exports slowed and buyers sought cheaper supply from Brazil and Ukraine. Prices will rebound because the government overestimated the harvest and probably will lower the figure, said analysts.

Corn averaged a record $6.89 in 2012 and that may encourage farmers to plant more in 2013, easing concern about supply, according to analysts. U.S. production will expand to 14.83 billion bushels in 2013, 38 percent more than in the previous season, said Informa Economics on December 19. Domestic supply may also exceed analysts’ expectations because sales of cargoes for export before September 1 fell 48 percent since October 1, 2012, cutting the amount of grain that normally is in transit and not counted as inventory, according to U.S. Department of Agriculture data.

Prices will average $8.14 through August 31, said Hussein Allidina, the head of commodity research at Morgan Stanley, in a January 8 report. Goldman, in a December 5 report, forecast $8.25 in six months. Corn futures for delivery in March rose 0.4 percent to $6.9725 at 12:51 p.m. in Chicago on January 10.