Low stocks push corn to record high

High demand from livestock, ethanol and food industries

Corn prices shot to an all-time high after the US government said demand from the livestock, ethanol and food industries would keep the world from rebuilding low stocks.

The US Department of Agriculture said domestic stocks of the grain would decline to 695m bushels by the end of August 2012, the lowest since the mid-1990s, after darkening its outlook for this year’s harvest.

The agency sharply raised forecasts of corn demand in China, where meat purchases are rising alongside incomes.

The estimates further raised fears of food inflation that will pinch consumers and fuel concerns for central bankers.

Corn for July delivery rose as much as 3.8 per cent to a record $7.93 a bushel on the Chicago Board of Trade.

“This new USDA forecast is worrying. Rising food prices could intensifypolitical unrest in the Middle East and north Africa region over 2011-12 and will complicate policymaking in emerging markets,” said Charles Robertson, global chief economist at Renaissance Capital in London.

This year’s corn-growing season was tenuous from the start, with ideal conditions needed to replenish stocks from levels that could threaten mills and ethanol plants.

But weather has not co-operated. Rains delayed planting in key farm states in the US, the top corn exporter.

Farmers likely sowed 1.5m acres less corn than they intended, though at 90.7m acres the expanse would still be the second-biggest since the second world war.

Recent floods could shrink corn fields further. The US now envisions farmers will harvest 13.2bn bushels, 2.3 per cent less than its previous guess, but a record nonetheless.

“We have no margin for error,” said Alex Bos, agricultural strategist at Macquarie Group.

The USDA also cut back its forecast for the wheat crop in Europe after a brutal dry spell there.

Wheat, which faces a more comfortable supply cushion than corn, initially jumped, but ended the day 0.4 per cent lower at $7.45 a bushel in Chicago.

Despite high prices, the USDA raised its forecast for world corn consumptionto a record 872m tonnes, up 3 per cent from the current year.

Corn is used for products ranging from animal feed to liquor, sweeteners and motor fuel.

So far rising prices – up 132 per cent in the past year on the futures market – have not smothered demand.

The trend is especially evident in China, where livestock farmers and industrial corn users are expanding operations. The second largest corn consumer and producer, China has also begun importing small amounts of the grain.

The USDA said that China’s growing corn harvest “struggles to keep pace” with consumption that is to rise 5 per cent in the crop year beginning in September.

Luke Chandler, grain analyst at Rabobank, said: “The corn market is extremely tight. But in spite of near record prices for corn, we continue to see very strong consumption. We are not yet rationing demand enough.”

Additional reporting by Javier Blas

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