Corn supply slumps most since ’75 on ethanol profit

Ethanol Profit

Ethanol prices in Iowa, the biggest corn-growing state, jumped 22% since Jan. 4, according to the USDA. The industry cut output by as much as 16% from a peak in June, after corn surged to a record $8.49 on Aug. 10.

Inventories of the fuel that normally increase in the months before the summer driving season tumbled 16% since mid-December and are the lowest since almost 15 months, Department of Energy data show. Ethanol is blended with gasoline in most of the U.S.

“The roof is going to blow off the corn market if we don’t slow production,” said Mark Schultz, the chief analyst for Northstar, a cash-grain trader and broker. “Corn prices could rise to $8.30 to finally shut off demand and prevent regional shortages before the harvest.”

Higher prices already reduced demand from livestock and dairy producers that consume about 42% of the nation’s corn. Feed use slipped to 1.524 billion bushels in the three months ended March 1, from 1.543 billion a year earlier, Dan Cekander, the director of grain market analysis at Newedge USA LLC in Chicago, said in a report to clients on March 19.

Alternative Feed

Dairy farmers in California, the biggest milk-producing state, cut back to about 5 pounds of corn a day per cow from 15 pounds after local cash prices reached $8.80, according to Joel Karlin, the commodity sales coordinator for Western Milling LLC in Goshen. They switched to cheaper alternative feeds including hay and byproducts from fruit and vegetable processing.

Some corn buyers may wait until the harvest. The USDA said in February that output will rebound to a record 14.53 billion bushels this year with normal weather. The department probably will report tomorrow that planting in April and May will rise to 97.339 million acres, the most since 1936, according to the Bloomberg survey of analysts. Corn futures for delivery in December are 22% cheaper than the May contract, and 35% of the 1,500 farmers queried by Farm Journal magazine last week said prices will peak this summer.

Commercial Depots

Stockpiles also are getting harder to predict because growers are storing more in their own silos rather than paying for space in commercial depots. On-farm storage capacity expanded 1.4% from a year earlier to 12.975 billion bushels in December 2012, the most since at least 1989, USDA data shows.

Over the past six years, analysts’ estimates for the March 1 inventory missed the USDA tally by an average of 123 million bushels, according to data compiled by Bloomberg. That’s enough corn to feed 15.4 million pigs, or 14% of the U.S. herd, until they are big enough to be sold for slaughter. For the 11 quarters since June 2010, the average intraday price swing on the day of the USDA inventory report was 5.6%, with prices rising six times and falling five.

While the U.S. cattle herd is shrinking, domestic hog farmers expanded their breeding herd by 0.2% to 5.817 million sows on Dec. 1 from a year earlier, according to a quarterly USDA tally. The number of chicks placed on feed in the week ended March 15 was up 1.2% from a year earlier.

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