Futures are headed for a record annual average this year, and that should spur farmers to sow more crops. Informa Economics Ltd., a Memphis, Tennessee-based research company, predicted Nov. 2 that global production will jump 14 percent to a record 950.7 million tons next year.
If the weather returns to normal, futures for December 2013, after the U.S. harvest, may be as much 37 percent overvalued, Chris Gadd, an analyst at Macquarie Group Ltd. in London, said in a report Dec. 6. Gadd predicted the contract may drop as low as $4, from $6.3675 yesterday.
“We are just one crop away from a substantial increase in supplies,” Douglas Carper, the principal of Omaha, Nebraska-based DEC Capital Inc., a commodity trading adviser and consultant to hedge funds. “If we have a widespread moisture event over the heart of the Corn Belt between now and April, there would be an epiphany that would sweep over folks.”
More than 56 percent of the nine-state Midwest region where most of the crop is grown had moderate to exceptional drought by Dec. 4, compared with 15 percent a year earlier, according to the U.S. Drought Monitor. That reduced the level of the Mississippi River, delaying barges carrying grain to Gulf of Mexico ports and export markets.
Hedge funds and other speculators boosted their net-long positions, or bets on higher prices, for three weeks and are the most bullish on corn since Oct. 23, U.S. Commodity Futures Trading Commission data show.
Global inventories may not get the expected boost in February from Argentina and Brazil, the biggest exporters after the U.S. flooding led farmers in Argentina to plant 10 percent fewer acres than expected, which means output may total 22.5 million tons, below the USDA’s estimate of 27.5 million, said Michael Cordonnier, the publisher of the Soybean & Corn Advisor in Hinsdale, Illinois. In Brazil, dry weather may cut output to 70 million tons from 73 million a year ago, he said.