Demand for U.S. corn (CBOT:CZ13) fell the most since 1975 in the past year, leaving a bigger-than-forecast surplus stacked in silos just as farmers begin reaping what the government says will be the world’s largest-ever crop.
Domestic consumption and exports fell a combined 10% in the year ended Aug. 31, government data show. Total supply after the harvest starts this month will rise 24% to 14.537 billion bushels (369 million metric tons) as fields recover from last year’s drought, according to the average of 28 analyst estimates compiled by Bloomberg. Goldman Sachs Group Inc. analysts say corn will drop to $4.25 a bushel in three months, or 6.1% less than now.
The U.S. will reap 28% more corn this season, doubling inventories before next year’s harvest after losing market share to shippers in Brazil, Argentina and Ukraine. Global supply is surging after prices reached a record $8.29 in 2012 and futures are heading for the biggest annual drop in at least five decades. Cheaper grain is boosting profit for Archer- Daniels-Midland Co., which makes ethanol from the grain, and Sanderson Farms Inc., the third-largest U.S. poultry producer.
“Domestic utilization is stagnant, and high prices the past five years have shifted foreign demand to other suppliers,” said Michael Swanson, the senior agricultural economist in Minneapolis for Wells Fargo & Co., the largest U.S. farm lender. “We are transitioning from tight supplies to abundant inventories, and that may result in several years of lower prices. That’s good news for everyone that uses corn.”
Futures plunged (CBOT:CZ13) 35% to $4.54 on the Chicago Board of Trade this year, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which slid 1.9%. The MSCI All-Country World Index of equities rose 13% since the end of December and the Bloomberg U.S. Treasury Bond Index lost 2.4%.
Domestic stockpiles on Sept. 1 probably totaled 694 million bushels, more than the 661 million the U.S. Department of Agriculture estimated on Sept. 12, the Bloomberg survey of analysts showed. Demand for U.S. supplies in the next 12 months will be at least 3.2% below the USDA forecast because of competing supply in export markets, a lack of growth in ethanol demand and slowing expansion in meat production, Swanson said.
The U.S. share of global exports fell to 20% in the 12 months ended Aug. 31, from 33% a year earlier, government data show. The USDA says that will rebound to 30% this season as the U.S. crop helps boost world output by 11% to 956.7 million tons. The agency will update its inventory estimate on Sept. 30 at noon in Washington.