Corn Prices Soar as USDA Cuts Supply Forecasts

According to the report, global corn trade is forecast down over 1 million tons with lower imports by Brazil, South Korea, and Turkey more than offsetting increases for Indonesia. Argentine and Turkish exports are lowered on smaller crops.

13 Jan 2011 --- Corn and soybean prices have risen dramatically after the US Department of Agriculture lowered this year's production forecasts for both crops, which already are in tight supply. The USDA Department is predicting corn production will fall about 5 percent and soybean production will fall about 1 percent.

According to the report, global corn trade is forecast down over 1 million tons with lower imports by Brazil, South Korea, and Turkey more than offsetting increases for Indonesia. Argentine and Turkish exports are lowered on smaller crops. “Through December, U.S. corn export prices are up $20/ton to $267/ton, due to strong domestic use for feed and fuel and concerns over increasing dryness in Argentina,” according to the Report.

The Report noted that a combination of factors has been fueling corn prices in recent months. Reduced grain supplies in Russia will necessitate corn imports, adding more pressure to available global corn supplies. In the United States, prospects for a record crop diminished as yields fell well below expectations. Lower production, combined with both strong foreign and domestic demand, is expected to push ending stocks to their lowest level since 1995/96. The EU continues to aggressively pursue corn imports to offset smaller crops as indicated by its strong pace of import licenses. After China’s unexpected imports last year, the potential for further imports adds another element of market uncertainty. Imported corn prices have lost some competitiveness vis-à-vis domestic feed ingredients in China.

Against this backdrop of shrinking supplies, hopes of a bumper Argentine corn crop have now diminished, reducing exportable supplies. However, countries such as Ukraine, Serbia, and South Africa have greater exportable supplies that could help moderate global corn prices. Additionally, poor quality wheat crops in Australia and Canada will mean more feed-quality wheat available to partially replace corn in some countries such as South Korea and Israel.

Prices of corn and soybeans leapt 4% Wednesday and wheat gained 1%, continuing the broad rally in commodity prices that began in June. With yesterday's gains, prices of corn futures contracts are now up 94% from their June lows; soybeans are up 51% and wheat is up 80%, the Wall Street Journal reported.