As the world’s livestock herds and ethanol plants prepare to consume more corn than farmers can grow over the next year, there’s still more than enough of the grain to go around.
Global inventories were at a 27-year high after two straight seasons of record harvests. Exports by the U.S., the biggest producer, are running 28 percent behind last year’s pace as a stronger dollar entices buyers to go elsewhere for cheaper supply. And while global reserves are forecast to shrink for the first time in five years with smaller crops in the U.S. and Europe, a measure of inventories relative to usage still remains near the highest in 13 years.
“The supply’s coming down, but so is the demand,” said Don Roose, president of U.S. Commodities Inc. in West Des Moines, Iowa. “There’s too much world grain.”
The lagging pace of exports is limiting a “wild bull story” for corn, the world’s most-consumed crop, Roose said. Concern over tighter supplies has left prices up 17 percent from a year ago, more than all but canola, touching a one-year high of $4.5425 a bushel in July. The grain rallied in September after the U.S. Department of Agriculture cut its world production forecast for a fourth month. But fund managers have cut their bullish bets on Chicago corn futures by 71 percent since late July, amid signs that demand may be slower than forecast.
It is unlikely that corn used in feed rations will increase over the coming season because beef, pork and poultry producers can substitute with global grain sorghum supplies at a 19-year high and wheat stockpiles the highest ever, according to Pedro Dejneka, managing partner for AGR Brasil, a unit of Chicago- based AgResource Co. The U.S. government also has cut mandates on the amount of ethanol that has to be blended in gasoline, halting the growth in corn use by refiners.
That leaves exports, which account for about 13 percent of domestic corn output. Total commitments for U.S. corn exports for delivery in the year that began Sept. 1 have reached 9.339 million metric tons, 28 percent less than a year earlier, USDA data show.
The dollar has climbed 7.3 percent this year against a basket of 10 currencies, including a 52 percent gain against the Brazilian real, reducing global competitiveness for agricultural goods priced in U.S. money.
“It is doubtful the demand side of the U.S. ledger can expand enough to tighten the balance sheet,” Dejneka said. “The U.S. has become the supplier of last resort. Prices may have to fall to $3.50 a bushel to entice improved global demand." The December contract on the Chicago Board of Trade traded at $3.8275 on Wednesday.
The ratio of global corn stockpiles to consumption was the highest in 12 years in the season ended Aug. 31, USDA data show. While that measure is expected to shrink 4.8 percent next year, the value would be the second-highest in the period. The combined ratio for corn and wheat this year is forecast to top 24 percent, a 14-year high.
Over the past 12 months, corn’s rally was the biggest on the Bloomberg Commodity Index, which tracks 22 raw materials. Soybeans dropped 7.7 percent and wheat advanced 4.2 percent over the same period. Global stockpiles of those crops are expected at all-time highs at the end of this marketing year.
The USDA cut its U.S. production forecasts to 13.585 billion bushels on Sept. 11, estimating the crop at the third- largest ever following two years of record output. The agency also trimmed its outlook for European Union production to an eight-year low. Continued cuts to U.S. production are expected, and total output may end up closer to 13.34 billion bushels, said Marty Foreman, an economist at Doane Advisory Services in St. Louis.
Brazil, the second-largest corn grower, has doubled output during the past decade as rising prices encouraged farmers to diversify into corn as a second-season crop that can be grown after the soybean harvest. The USDA expects Brazil to export 29 million tons in the season that ends Feb. 28, up from 22 million last year, after a record crop and a weakening real that makes U.S. exports less competitive. Brazilian corn is $10 cheaper per ton than U.S. grain for the next four months, and shipments may rise to as much as 32 million tons, said Dejneka of AGR Brasil.
“When you look at a balance sheet, it’s a bit hard to see where the demand side improves markedly over the rest of this crop year,” said Fiona Boal, director of commodity research at Fulcrum Asset Management in London.