Funds make record bearish corn bets on supply

Meat Processor

Cheaper corn is boosting profit for buyers including Archer-Daniels-Midland Co., the largest processor of the grain, and Tyson Foods Inc., the biggest U.S. meat processor. Declining feed costs should also help curb global meat prices, which rose to within about 2% of a record in June, according to data from the United Nations’ Food & Agriculture Organization in Rome.

Hedge funds and other large speculators increased their net-short position, or bets on lower prices, for two consecutive weeks to 108,089 futures and options, U.S. Commodity Futures Trading Commission data show. A futures contract represents 5,000 bushels. Their net-long holdings peaked last year at 342,893 contracts in August as the U.S. endured its worst drought since the 1930s and prices reached a record $8.49.

The scale of bearish bets presents a risk because it makes it harder to find more sellers, Morgan Stanley analysts wrote in a report Aug. 5. Signs are “building that a corn correction could be ripening” and export sales of this year’s crop are running at the fastest pace in a decade, they said.

Crop Development

Weather could still disrupt the development of the crop and curb yields. Heavier-than-normal rain delayed planting in parts of the Midwest, the biggest producing region, in May and June. Cooler temperatures may slow growth and increases the risk of frost, Morgan Stanley said. Harvesting already started in Texas and Louisiana and should start in late September in the Midwest.

Slumping prices should also spur demand limiting gains in stockpiles. Global consumption jumped 6.6% in 2008, the most since 1987, as futures tumbled almost 11%, USDA data show. Some livestock producers added more wheat to feed rations last year as corn surged to a record. Wheat for December delivery is trading at a $1.98 premium to corn for the same month, compared with an average discount of $1.26 last year, bourse data compiled by Bloomberg show.

About 64% of the corn crops in the 18 biggest producing U.S. states were in good or excellent condition on Aug. 4, above the 10-year average of 59%, the USDA said this week. A sampling of fields by Doane Advisory Services Co. this month showed farms producing 30,500 ears of corn per acre, above the record 30,200 set in 2011.

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