Lower corn prices are "good news for everyone that uses corn," says Wells Fargo economist.
Demand for U.S. corn fell the most since 1975 in the past year, leaving a bigger-than-forecast surplus stacked in silos just as farmers begin reaping what the government says will be the world’s largest-ever crop.
Domestic consumption and exports fell a combined 10 percent in the year ended Aug. 31, government data show. Total supply after the harvest starts this month will rise 24 percent to 14.537 billion bushels (369 million metric tons) as fields recover from last year’s drought, according to the average of 28 analyst estimates compiled by Bloomberg. Goldman Sachs Group Inc. analysts say corn will drop to $4.25 a bushel in three months, or 6.1 percent less than now.
The U.S. will reap 28 percent more corn this season, doubling inventories before next year’s harvest after losing market share to shippers in Brazil, Argentina and Ukraine. Global supply is surging after prices reached a record $8.29 in 2012 and futures are heading for the biggest annual drop in at least five decades. Cheaper grain is boosting profit for Archer- Daniels-Midland Co., which makes ethanol from the grain, and Sanderson Farms Inc., the third-largest U.S. poultry producer.
Wells Fargo economist Michael Swanson will speak at our Elite Producer Business Conference Monday, Nov. 11 at the Bellagio in Las Vegas. Click here to learn more about attending the conference.
"Domestic utilization is stagnant, and high prices the past five years have shifted foreign demand to other suppliers," said Michael Swanson, the senior agricultural economist in Minneapolis for Wells Fargo & Co., the largest U.S. farm lender. "We are transitioning from tight supplies to abundant inventories, and that may result in several years of lower prices. That’s good news for everyone that uses corn."
Futures plunged 35 percent to $4.54 on the Chicago Board of Trade this year, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which slid 1.9 percent. The MSCI All-Country World Index of equities rose 13 percent since the end of December and the Bloomberg U.S. Treasury Bond Index lost 2.4 percent.
Domestic stockpiles on Sept. 1 probably totaled 694 million bushels, more than the 661 million the U.S. Department of Agriculture estimated on Sept. 12, the Bloomberg survey of analysts showed. Demand for U.S. supplies in the next 12 months will be at least 3.2 percent below the USDA forecast because of competing supply in export markets, a lack of growth in ethanol demand and slowing expansion in meat production, Swanson said.
The U.S. share of global exports fell to 20 percent in the 12 months ended Aug. 31, from 33 percent a year earlier, government data show. The USDA says that will rebound to 30 percent this season as the U.S. crop helps boost world output by 11 percent to 956.7 million tons. The agency will update its inventory estimate on Sept. 30 at noon in Washington.