Corn Rebounds From 40-Month Low as U.S. Revises Supply Estimates

Jan 10, 2014 2:59 pm ET

Jan. 10 (Bloomberg) -- Corn futures surged the most since August, rebounding from a 40-month low, after the government said production and supplies in the U.S., the world’s top grower and exporter, were smaller than forecast by analysts.

Farmers collected a record 13.925 billion bushels last year, less than the 13.989 billion estimated in December, the U.S. Department of Agriculture said. Analysts in a Bloomberg survey expected 14.06 billion. Stockpiles on Dec. 1 were 10.43 billion bushels. While that’s 30 percent larger than a year earlier, analysts expected a 34 percent jump.

“The U.S. report was a bullish surprise with the market trading at a new 40-month low and expecting a bigger crop,” Don Roose, the president of U.S. Commodities in West Des Moines, Iowa, said in a telephone interview. “The combination of a smaller crop and implied better feed demand will put a floor under the market. It does not change the long-term fundamentals of rising world grain supplies.”

Corn futures for March delivery jumped 5 percent to settle at $4.3275 a bushel at 1:15 p.m. on the Chicago Board of Trade, the biggest gain for a most-active contract since Aug. 26.

Before the report at noon Washigton time, futures touched $4.0625, the lowest since Aug. 11, 2010. In 2013, the price tumbled 40 percent as output rebounded after a drought damaged crops a year earlier.

Bearish Bets

Corn reached a two-week high of $4.33, prompting some speculators to unwind bets on lower prices, Dave Smoldt, a vice president at INTL FCStone LLC in Des Moines, Iowa, said in a telephone interview.

Hedge funds have been wagering on a drop in prices since July, holding a net-short position of 94,812 futures and options as of Dec. 31, government data show.

“Funds were caught short and looking for a bearish report, which they obviously did not get,” Smoldt said. “It’s a classic bear-trap rally, but it doesn’t change the fact that corn supplies will be more than adequate.”

U.S. inventories before the 2014 harvest will be 1.631 billion bushels, compared with 1.792 billion estimated in December and 821 million at the start of this marketing year on Sept. 1, the USDA said. Traders expected 1.855 billion bushels.

Corn use in the first quarter was estimated at a record 4.32 billion bushels, up 16 percent from a year earlier, the USDA said. The forecast for annual consumption in livestock feed was revised 1.9 percent higher from a month earlier to to 5.3 billion, the highest in six years.

South America

While stockpiles will be less than analysts expected, the size of the surplus is going to be big enough to “support corn at $4 until we know what South America produces and how the U.S. spring-planting season unfolds,” Dale Schultz, the buyer- relations manager for AgWest Commodities LLC in Holdrege, Nebraska, said in an e-mail. “I’m not sure it gives a reason to rally that much.”

Cash prices in the current marketing year will average $4.10 to $4.70 a bushel, the USDA predicted, compared with the December estimate of $4.05 to $4.75 and down from $6.89 last year.

Worldwide inventories at the end of the marketing year will be 160.23 million tons, compared with 162.46 million predicted a month ago and up from the year-earlier figure of 132.98 million. Analysts surveyed by Bloomberg forecast reserves would rise to 163.08 million.

Global inventories of wheat, also used to make livestock feed, will be 185.4 million metric tons, compared with 182.78 million estimated by the government in December and 176.13 million a year earlier. The analyst survey forecast a drop to 182.68 million.

--Editors: Patrick McKiernan, Steve Stroth