Bloomberg
Chicago

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 US, the biggest producer, are running 28% 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 US 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 US Commodities 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% 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 US 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% 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 US 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% of domestic corn output. Total commitments for US corn exports for delivery in the year that began September 1 have reached 9.339mn metric tonnes, 28% less than a year earlier, USDA data show.
The dollar has climbed 7.3% this year against a basket of 10 currencies, including a 52% gain against the Brazilian real, reducing global competitiveness for agricultural goods priced in US money.
“It is doubtful the demand side of the US ledger can expand enough to tighten the balance sheet,” Dejneka said. “The US 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 yesterday.
The ratio of global corn stockpiles to consumption was the highest in 12 years in the season ended August 31, USDA data show. While that measure is expected to shrink 4.8% 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%, 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% and wheat advanced 4.2% 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 US production forecasts to 13.585bn bushels on September 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 US production are expected, and total output may end up closer to 13.34bn 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 29mn tonnes in the season that ends February 28, up from 22mn last year, after a record crop and a weakening real that makes US exports less competitive. Brazilian corn is $10 cheaper per ton than US grain for the next four months, and shipments may rise to as much as 32mn 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.