Tightest corn crop since ‘74 as Goldman sees rally

Demand Outlook

Demand for corn to feed livestock and make ethanol may not be slowing as much as the USDA expects. Hog farmers kept buying corn even as prices topped $8 because they were hedging some of their costs, Larry Pope, the chief executive officer of Smithfield Foods Inc., the largest pork producer, said on a Dec. 6 conference call with analysts. Hog herds expanded about 4 percent in the three months ended Oct. 28, he said.

U.S. red-meat production jumped 7.2 percent to 4.579 billion pounds in October, and pork output gained 8.7 percent to 2.21 billion pounds, the highest ever for the month, government data show. Supplies of young chickens rose 7.5 percent and turkey 9.9 percent, the USDA said in a Nov. 26 report.

Domestic corn inventories before the 2013 harvest may fall to 546 million bushels, below last month’s USDA forecast of 647 million bushels, said Dan Cekander, the director of grain-market analysis at Newedge USA LLC in Chicago. The increase in feed demand during the three months ended Dec. 1 probably won’t appear in USDA data until the Jan. 11 report, he said.

Fuel Use

Ethanol distillers, who used 41 percent of the U.S. crop last year, boosted production by 4 percent in the week ended Nov. 30, the biggest gain in 14 months and the highest output since the end of June, Energy Department data show.

A reliance on crops to make fuel and expanding economic growth will keep grain inventories tight and contribute to a “new norm” of high food prices over the next two decades, the World Bank said in a Nov. 27 report. Risks to supply are increasing at a time when 12 percent of the world population remains chronically undernourished, the bank said.

World food prices, while down 11 percent from a record in February 2011, were the highest ever on average during the past two years and more than doubled in the past decade, according to the United Nations’ Food & Agriculture Organization in Rome.

“People and animals continue to eat,” said Sal Gilbertie, who helps manage $69 million of assets as president and chief investment officer of Teucrium Trading LLC in Santa Fe, New Mexico. “Everything in grocery stores is made from corn.”

Bloomberg News

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