U.S. corn sales fall most since ’75 as farmers reap

Withholding Supply

Record harvests may not mean an immediate glut of supply because U.S. growers increased their storage capacity, allowing them to stockpile grain until prices rise. On-farm storage expanded 16% in the decade through 2012 to almost 13 billion bushels, the most since at least 1989, USDA data show. Grain companies expanded capacity by 20% to 10.247 billion bushels.

There may also be plenty of space for the new crop after U.S. output fell 13% last year. The farmer-owned West Central Cooperative in Ralston, Iowa, has its smallest stockpiles since 1996 and 96% of its storage space is empty, said Roger Fray, an executive vice president.

The government estimates 31% of the crop is usually sold from Sept. 1 to Dec. 1. This year, farmers are in no hurry, with sales at about a third of normal for this time of year, Fray said. Soybeans are trading at the highest ratio to corn since 2009, and that may encourage farmers to store corn and sell soybeans, said Peter Meyer, a senior director for Pira Energy Group in New York.

Bearish Bets

Hedge funds and other large speculators have been betting on lower corn prices since July, with a net-short position of 104,211 futures and options on Sept. 17, Commodity Futures Trading Commission data show. One futures contract represents 5,000 bushels now valued at $22,625.

The world is less dependent on U.S. corn, which accounted for more than 67% of exports in 2006, government data show. Brazil and Argentina will both sell more than the U.S. for the first time ever in the marketing year that ends Sept. 30.

Midwest farmland values that reached record highs this year could drop as much as 20% over the next three years, mostly because of rising supplies of corn, the biggest and most- valuable U.S. crop, Rabobank said in a Sept. 19 report.

Lower Costs

Tyson Foods Inc., the largest U.S. meat processor, said Aug. 5 that more grain supply will cut the cost of feeding its chickens, hogs and cattle. The company, based in Springdale, Arkansas, will report a 27% jump in profit to $1.01 billion in its fiscal year ending Sept. 30, 2014, according to the mean of eight analyst estimates. The shares rose 48% to $28.67 since the start of January and will reach $35.40 in 12 months, the average of 10 forecasts shows.

Sanderson Farms, based in Laurel, Mississippi, expects feed costs to tumble by $65 million in the fourth quarter, Chief Executive Officer Joe Sanderson said in an Aug. 27 conference call. That will reduce the cost of producing a pound of chicken meat by 8 cents, compared with total costs of 40.05 cents in the third quarter, he said.

Rising corn supply signals a “very optimistic” outlook for ethanol margins for Archer-Daniels-Midland in 2014 and 2015, Chief Operating Officer Juan Ricardo Luciano said on an Aug. 6 conference call. Shares of the Decatur, Illinois-based company rose 34% this year.

U.S. ethanol output peaked at 13.9 billion gallons in 2011, using a record 5.021 billion bushels of corn. The USDA estimates 4.655 billion bushels were used in the year that ended Aug. 31.

Dairy Producers

Last year’s surging prices reduced demand from livestock and dairy producers that consumed about 42% of the nation’s corn, said Roy Huckabay, an executive vice president for the Linn Group, a brokerage operating from the Chicago Board of Trade. Feed use in the three months ended Sept. 1 totaled 331 million bushels, compared with 479 million bushels in the same period of 2011, he said.

Stockpiles of grain are getting harder to predict as growers plant and harvest earlier, seeking higher yields, and as they build more silos on their land rather than sending grain to commercial elevators, said Dale Durchholz, the senior analyst for AgriVisor LLC in Bloomington, Illinois.

Analysts on average underestimated the size of Sept. 1 inventories in four of the past six years, data compiled by Bloomberg show. In those four years, the USDA reported stockpiles on average 15% more than forecast.

“We are looking at rising supplies and lower prices for the next year,” Durchholz said. “The boom times for U.S. agriculture are done for a while, and no one is going to chase rallies until there is a threat to crops.”

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