Corn boom goes bust with U.S. sales in record drop

CHICAGO – The record collapse in U.S. corn exports and shrinking domestic demand are leaving more grain in silos, spurring a bear market just eight months after drought drove prices to an all-time high.

Stockpiles will be 836 million bushels (21.2 million metric tons) on Aug. 31, or 32 percent more than the U.S. Department of Agriculture forecast last month, according to the average of 35 analyst estimates compiled by Bloomberg. Export sales from the world's largest grower and shipper fell 54 percent in the year that began Sept. 1, heading for the biggest annual drop in government data that starts in 1960.

Surging grain costs last year forced Cargill Inc. and other meat producers to close plants and ethanol makers including Valero Energy Corp. to shut distilleries, easing demand for corn supplies curbed by the worst drought since the 1930s. The USDA says output will rebound as farmers plant the most acres in 77 years. Futures fell 23 percent from their peak in August, joining wheat and soybeans in bear markets as global food costs tracked by the United Nations fell for five consecutive months.

"The corn-supply situation has gone from being underwater to having its head above water," said Roger Fray, the executive vice president of grain at farmer-owned grain handler West Central Cooperative in Ralston, Iowa, who expects cash prices to drop 20 percent by December. "We have enough supply until what should be a record harvest."

Futures plunged 7.3 percent to $6.4425 a bushel this month on the Chicago Board of Trade, the most of 24 commodities tracked by the Standard & Poor's GSCI Spot Index, which slid 2.7 percent. The MSCI All-Country World Index of equities retreated 0.1 percent, and the U.S. Dollar Index, a measure of the currency against six trading partners, weakened 0.8 percent. Treasuries returned 0.8 percent, a Bank of America Corp. index shows.

Corn will average $6.15 in the fourth quarter, compared with $7.1125 in the first three months of the year, according to analyst estimates compiled by Bloomberg. The December contract on the CBOT closed Tuesday at $5.4025.

U.S. exports are dropping faster than the government had forecast. Shipments since Sept. 1 reached 15.52 million tons as of March 28, from 34.07 million tons a year earlier, according to the USDA. The agency updates its forecasts Wednesday.

Cattle, hog and poultry producers in the U.S., who use two of every five bushels grown, probably consumed 30 percent less in the first quarter from a year earlier, based on March 1 inventories, said Joel Karlin, the director of commodity sales at Goshen, Calif.-based Western Milling, which makes feed. Production of ethanol, the second-largest user of corn, fell 12 percent since Sept. 1, Department of Energy data show.

Cheaper corn may revive demand from importers including China that allowed stockpiles to diminish when prices were high, said Jeff Hainline, the president of Advance Trading Inc. in Bloomington, Ill. Midwest farmers won't plant until late this month, and lingering drought in Iowa, Minnesota, Nebraska and South Dakota means more risk the harvest in October will fall short of the government's target, he said.

The cost of importing U.S. corn in China is less expensive than domestic supply, data from Shanghai JC Intelligence Co. show.

The world is less dependent on U.S. corn, with its market share dropping to 24 percent this year, from more than 33 percent a year earlier, government data show. Argentina, the second-largest exporter, will boost output by 23 percent to 25.74 million tons, and Brazil will reap its second-largest crop ever, according to a Bloomberg survey.