Three consecutive years of smaller U.S. corn harvests are driving inventories of the world’s most-consumed grain to a 39-year low and spurring Goldman Sachs Group Inc. to predict that prices will rise near record highs.
Global stockpiles will drop 11 percent to 117.61 million metric tons by Oct. 1, or 13.6 percent of what will be used for food, ethanol and livestock feed, the lowest ratio since 1974, the U.S. Department of Agriculture said today in a report.
Prices surged 44 percent since mid-June as U.S. farmers endured their worst drought in 56 years, and heat waves and dry weather seared crops from Australia to Europe. While futures fell 14 percent since reaching a record $8.49 a bushel on Aug. 10, tightening supply before next year’s harvest will drive prices to an average of $8.25 in the next six months, 13 percent higher than today, Goldman said in a Dec. 5 report.
“It will take more than one year of good weather and high yields to dig the world out of this supply hole,” said Peter Meyer, a senior director of agriculture commodities at PIRA Energy Group in New York. “While corn prices may not spike, they will remain well supported until the extreme moisture deficits in the U.S. are rectified.”
Corn was down 0.1 percent at $7.295 as of 8:23 a.m. on the Chicago Board of Trade, paring this year’s rally to 13 percent. The Standard & Poor’s GSCI Agriculture Index of eight commodities gained 7.8 percent since the start of 2012, while the MSCI All-Country World Index of equities advanced 12 percent. A Bank of America Corp. index shows Treasuries returned 2.7 percent.
Production in the U.S., which accounted for 32 percent of world supply this year, fell 13 percent to 272.4 million tons, the smallest harvest since 2006, the USDA said Nov. 9. That’s 18 percent less than the record 332.5 million tons in 2009 after dry weather in 2010 and heat waves last year.
Global consumption will exceed supply for the second time in three years, even as a faltering economy erodes demand by 1.7 percent to 862.52 million tons in the season ending Oct. 1, according to the USDA. While that would be the first drop since 1995, the decline in production will be even steeper, retreating 3.7 percent to 849.09 million tons, the agency said.
Prices will reach $7.85 in six months because inventories are “precariously low,” Hussein Allidina, the head of commodity research at Morgan Stanley in New York, wrote in a Dec. 5 report.