Athree per cent reduction in the U.S. corn crop after a scorching summer will be largely offset by an abrupt fall in demand from both domestic and export consumers, the government forecast on Monday.
In a report that painted a marginally brighter outlook for world grain supplies thanks to larger wheat and rice crops, the Agriculture Department said U.S. corn yields had deteriorated even more than analysts had forecast, falling 4.9 bushels per acre to 148.1 bushels, lowest in six years.
While that reduced the overall corn harvest in line with trade expectations, an unexpectedly deep drop in demand from the ethanol and livestock sectors, as well as lower exports, helped limit the decline in stockpiles. The USDA lowered its forecasts for U.S. corn supplies next Sept. 1 to 672 million bushels, besting expectations for a bare-bones 636 million.
Corn users worldwide have turned increasingly to wheat this year, with the typical premium for wheat prices turned upside down due to soaring demand for feed, food and fuel. Corn prices in Chicago stretched their premium further, rising over one per cent on the USDA report while wheat fell 1.5 per cent.
The corn crop has deteriorated a lot, chief economist Joe Glauber told USDA s radio news service. One of the big stories right now is the corn price is so high, it has lent a lot of support to the wheat price.
Near-record corn prices and a smaller than expected crop will cut U.S. corn consumption by three per cent in the coming year, keeping supplies at their tightest level in 16 years. It will be the first decline in corn use in three years.
ETHANOL DEMAND DOWN
Export demand for corn could drop six per cent while demand from U.S. ethanol makers could drop four per cent on the high prices from August estimates. Wheat exports would drop seven per cent.
The livestock industry could be particularly hard hit as the sector limits herd size rather than pay $7 a bushel, the projected average price at the farm gate.
Corn prices will have to stay high in order to trim consumption, said agricultural economist Darrel Good of the University of Illinois. There is some expectation USDA will cut its corn and soybean forecasts in October, said Good.
Don Roose, analyst for U.S. Commodities, said the smaller corn crop estimated at 12.497 billion bushels by USDA sends a signal that we do have to ration corn usage.
USDA, however, did raise its estimate of the soybean harvest by one per cent, surprising traders who had been expecting a one per cent cut.
The rain at the end of the month did help, so soybean yields bounce back, said Roose.
The soybean stockpile would shrink to 165 million bushels by next fall, slightly larger than traders expected but a two-and-a- half week supply.
Larger wheat crops in Canada, the European Union and Ukraine will help boost global supplies by six million tonnes. End stocks would be the second-largest in a decade, said USDA. Global rice production was forecast for a record 458.4 million tonnes, up 2.1 million tonnes from last month.
With a slightly larger domestic cotton crop, China will import 14.5 million bales of cotton during 2011-12, down 500,000 bales from last month s estimate, said USDA. It cut its forecast of U.S. cotton exports by 300,000 bales, to 12 million bales for this marketing year.
Livestock and dairy producers have complained of high feed prices and the struggle to make a profit since the ethanol boom began a few years ago. A House Agriculture subcommittee called a hearing for this Wednesday on feed availability and its impact on the livestock and poultry industries.
JOE GLAUBER, USDA