US corn stocks seen dropping to 16-year low

US corn supplies are expected to fall to a fresh 16-year low before the fall harvest, said analysts polled by Reuters, signalling there will be razor-thin supplies this year that could stoke food inflation and hurt margins for food companies. Analysts expect USDA next week to cut ending stocks by 10 percent from its March estimate due to increased demand for feed and ethanol in the wake of a severe drought reducing supplies in South America.
Prices for corn will have to rise in order to dampen demand and preserve enough supplies to be held over into the next crop year in the United States, analysts said. The US Department of Agriculture (USDA) should confirm that scenario in its supply and demand report due out at 7:30 am CDT (1230 GMT) on Tuesday. An average of analysts' estimates pegged corn ending stocks at 721 million bushels, a 16-year low and down 80 million bushels from the government forecast in March.
Analysts also predict US soybean ending stocks to shrink to 246 million bushels, down 29 million bushels or 10.5 percent from USDA's March forecast of 275 million. The market got a signal about tightening supplies from USDA's quarterly stocks report on Friday, March 30, which should smaller-than-expected stocks of corn. That report sent Chicago Board of Trade corn prices sharply higher.
"Looking at the March 1 numbers from USDA you have to increase usage in the second quarter. I increased feed usage 100 million, exports 50 million and ethanol use 25 million," said Shawn McCambridge, analyst for Jefferies Bache. Morgan Stanley said in a note that "even a 100-million bushel increase in feed/residual demand would take the USDA's 2011/12 stocks-to-use ratio to a near-record-tight 5.5 percent."
In last week's quarterly stocks report the USDA said 6.009 billion bushels of corn were in US warehouses, 2 percent less than traders expected. Government data showed some 3.6 billion bushels were consumed since December 1, equal to 30 percent of last year's corn crop. "I don't think USDA will lower its ending stocks estimates for corn as much as implied by the stocks report," said Bryce Knorr, senior editor for Farm Futures Magazine.
"In addition to increased rationing and substitution of feed wheat in the June through August quarter, I believe they'll be counting on a lot of new crop hitting the pipeline in August to alleviate a squeeze," Knorr said. For soybeans, the ongoing effects of drought in South America remain at the fore. Analysts expect USDA to cut its soybean production estimates for Brazil, Argentina and possibly Paraguay.
As a consequence, the trade also expects USDA to lower its forecast of US 2011/12 soybean ending stocks because the crop losses in South America should steer more export demand to the United States. USDA in March pegged Brazil's soybean harvest at 68.5 million tonnes, but a report released Wednesday from USDA's attache in Brazil estimated the crop at 66 million tonnes. Attache reports are not official data but can signal moves the USDA might make in its next official forecasts.
The average Brazil soy crop estimate among 14 analysts surveyed by Reuters was 67.1 million tonnes. USDA currently forecasts Brazil will be the world's biggest soybean exporter in the 2011/12 marketing year, with the United States and Argentina taking the No 2 and 3 slots.
"There are no bean offers (for export) out of Argentina - none for any slot. In Brazil, there are still offers, but they have sold so much into the export market that the crusher is getting concerned about the supplies left over," said Roy Huckabay with the Linn Group, a Chicago brokerage.
Along with increased US exports, some analysts expect USDA to raise its estimate of the 2011/12 domestic soybean crush, currently forecast at 1.615 billion bushels. Soy crushers process soybeans into soyoil, which is used in foods and biodiesel fuel, and soymeal, used in livestock feed.
Bill Nelson of Doane Agricultural Services in St. Louis said a larger-than-expected US crush figure reported by the National Oilseed Processors Association in mid-March laid the foundation for larger crush forecasts. "It's indicative of stronger demand," he said of the monthly soy crush, which NOPA reported at 136.35 million bushels versus trade expectations for 134.5 million. However, Nelson said soymeal prices have rallied sharply since the NOPA report and could hurt demand down the road.