Corn stocks ‘to prove even tighter’ than USDA says

The squeeze on US corn supplies may be even stronger than shown by US data, implying a tightening to historic lows, given potential underestimates to demand from ethanol plants and foreign buyers, Standard Chartered said.

The bank, saying corn futures may continue rising into 2012, hiked its corn price forecasts by up to $1.25 a bushel, joining the scrum of observers upgrading estimates since the US Department of Agriculture last week downgraded hopes for domestic supplies of the grain.

Indeed, a cut of 156m bushels, to 714m bushels, in the USDA’s forecast for domestic corn stocks at the close of 2011-12 may still be optimistic, given the drop in consumption it now factors in.

"We believe the USDA has underestimated the corn end-season stocks," Standard Chartered analyst Abah Ofon said.

"There is further value along the corn futures curve into the first quarter of 2012."

‘Higher, not lower, use’

The USDA has underestimated US corn exports in 2011-12 by some 100m bushels, the bank said, forecasting a "tangible pick-up" in orders from Japan, the top corm importer, which relies on the US for more than 80% of its buy-ins.

Japan has witnessed "a rebound in industrial production and a moderate pick-up in consumer sentiment in the current quarter following the March earthquake".

Domestic ethanol production from corn may prove some 50m bushels higher than the USDA is factoring in too, Mr Ofon said, noting a "recent uptick" in margins and a long-term trend which suggested a continued rise in output of the biofuel.

"Corn ethanol margins point to higher, not lower, use of corn."

Forecast upgrades

The estimates fed through into a forecast of 608m bushels for the America’s stocks at the close of 2011-12, more than 100m bushels short of the official estimate, and equivalent to a stocks-to-use ratio of a tight 4.6%.

The stocks-to-use ratio is a key measure of the availability of a commodity’s supplies, and therefore its price potential.

Indeed, analysis with the Pearson model correlating the stocks-to-use metric with futures movements suggested a price of $7.62 a bushel.

Factoring in seasonal pricing patterns, suggesting an autumn dip and late-year rise, Standard Chartered lifted to $7.00 a bushel its forecast for prices in the current quarter, and to $7.50 a bushel its forecast for prices in the October-to-December period.

For 2012, the forecast was hiked by $1.25 a bushel to $6.09 a bushel.

Bullish throng

The comments follow bullish comments on corn prices from the likes of Barclays Capital, Goldman Sachs and Rabobank, with Commonwealth Bank of Australia saying a rise near to June’s record $8 a bushel could be on the cards.

Chicago’s most-watched December corn lot matched its contract high of $7.28 ½ a bushel in early deals before easing to $7.27 a bushel as of 10:30 GMT, down 0.5 cents on the day.

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