Corn turns bearish as rain revives U.S. crops

U.S. corn production is rebounding the most in two decades as farms recover from last year’s drought-plagued harvest. Hedge funds are bearish on prices for the first time since 2010.

Output this year will jump 30% to a record 13.983 billion bushels (355.2 million metric tons), according to the average of 20 analyst estimates compiled by Bloomberg. That will add enough grain to supply the 28-nation European Union and Japan for a year and more than double U.S. inventories before the harvest in 2014. Futures (CBOT:CU13) will drop 9% to $4.75 a bushel in three months, the lowest since October 2010, Goldman Sachs Group Inc. estimates.

Farmers planted the most acres since 1936 this season as some Midwest fields got three times their normal rainfall, including a record soaking in Iowa, the top growing state. Corn tumbled 18% in the cash market from the peak during last year’s drought, reducing costs for buyers including Archer- Daniels-Midland Co. and JBS SA and helping drive global food prices lower in six of the past nine months.

“The crop is going to be big,” said Hal Reed, the chief operating officer at Maumee, Ohio-based Andersons Inc., which owns terminals in seven states capable of storing 145 million bushels and produces 350 million gallons of ethanol from corn annually. “Conditions are looking very good right now. We will have lots of bushels to merchandise, more bushels to store, and cheaper corn for ethanol.”

U.S. Harvest

Futures for delivery in December, after the harvest, fell 13% to $5.22 this year on the Chicago Board of Trade. The Standard & Poor’s GSCI gauge of 24 commodities slipped 0.5% since the end of December, while the MSCI All-Country World Index of equities rose 8%. Treasuries lost 3.3%, a Bank of America Corp. index shows.

U.S. stockpiles on Sept. 30, 2014, will reach 1.895 billion bushels, from 715 million a year earlier, the analyst estimates show. The U.S. Department of Agriculture updates its forecasts today at noon in Washington.

Hedge funds turned bearish last week for the first time since April 2010, U.S. Commodity Futures Trading Commission data show. The net-short position reached 19,943 futures and options, the most since February 2009. Speculators were net-long 98,380 contracts as recently as May 28.

“We don’t see demand keeping up with the increase in supply,” said Chris Gadd, an analyst at Macquarie Group Ltd. in London who anticipates $4.50 or less before the end of the year. “Once you build that surplus, you have to sell it, and the only way to sell it is to sell it cheap.”

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