(NASDAQ) – Corn futures fell about 2% on Thursday, after the U.S. government unexpectedly raised its forecast for near-term corn supplies and projected a record corn harvest this autumn.
In its monthly supply-and-demand report for major crops, the U.S. Department of Agriculture said domestic corn inventories as of Aug. 31, the end of the current marketing year, are likely to be 851 million bushels, up 6.2% from the agency’s previous forecast of 801 million bushels. None of the 19 analysts in a Dow Jones Newswires poll had expected the USDA to raise its forecast.
U.S. corn production is expected to rise this year to a record of 14.79 billion bushels, from 12.358 billion bushels last year, as farmers boost yields to what could be a record 166 bushels an acre, the government said. Yields last year were 147.2 bushels an acre.
A harvest of that size would shatter the old record of 13.092 billion bushels set in 2009.
Chicago Board of Trade corn futures for July delivery, the most actively traded contract, recently were down 10 3/4 cents or 1.8% at 5.96 1/2 a bushel.
For months, analysts have been worried about tight current corn supplies. Spot markets for physical delivery of the grain have been strong, suggesting low availability. Recent Chinese purchases have heightened those concerns, and many analysts were waiting to see if the USDA would raise its corn export forecast for the current marketing year — which it didn’t.
“Lower prices, which this report will generate, will likely lead to even more exports,” said Jason Ward, an analyst with Northstar Commodity in Minneapolis.
U.S. corn stockpiles are likely to more than double to 1.881 billion bushels by the end of the 2012-13 marketing year, the USDA said.
The anticipated increased production in the U.S., as well as around the world, is expected to push prices down and limit U.S. exports, it said.
“Corn exports for 2012-13 are projected 200 million bushels higher than in 2011-12 on abundant domestic supplies, lower prices and higher expected China demand,” the USDA said. “Record foreign corn supplies, however, are expected to limit the increase in U.S. shipments.”
The large corn supply estimates could help further cool food inflation, which had surged last year.
In its monthly food index released last week, the United Nations’ Food and Agriculture Organization said April food prices were down 1.4% from March, and well below record-high levels in 2011. The FAO said it expects food prices to remain under downward pressure this year.
The USDA has also projected U.S. food inflation will cool this year. The agency currently projects food prices at the grocery store to climb 2.5% to 3.5% in 2012 from last year, down from an increase of 4.8% in 2011.
The price of corn has a broad impact on food prices, as it is a key commodity for producers of meat, dairy and eggs.
Still, the USDA’s bigger-than-expected corn-supply estimates could be offset by the agency’s tight soybean-supply forecast for the upcoming year.
The agency said domestic soybean stocks as of Aug. 31 are likely to drop to just 210 million bushels, down 16% from the 250 million bushels it predicted a month ago and 2.3% from a year earlier, due to higher exports and domestic use at processors. The forecast is also lower than the 221 million bushels expected on average by analysts in the Dow Jones poll.
The ending-stocks forecast for the end of the next marketing year is even lower — down to 145 million bushels, which is below the average analyst estimate of 170 million bushels.
U.S. farmers are likely to produce 3.205 billion bushels of soybeans this year, up 4.9% from last year, but that will be overshadowed by exports in the next marketing year rising 14.4% to 1.505 billion bushels, the USDA said.
The forecasts are likely to add to concerns about tightening soybean supplies amid lower South American production and rising Chinese demand. Soy futures have rallied since December on concerns about reduced output in Brazil and Argentina, which stems from a drought, and expectations their smaller production will drive more export demand to the U.S.
Futures for July soybeans at the Chicago Board of Trade were up 20 1/4 cents or 1.4% at $14.50 1/2 a bushel on Thursday morning.
U.S. soybean planting will be down from last year, but yields will be much higher, the USDA said.
Meanwhile, the government said domestic cotton production for 2012-13 will likely rise 9% compared with the current season, which ends July 31.
The U.S., the world’s leading cotton exporter, was one of the few exceptions to the USDA’s forecasts for next year. The agency sees global production dropping 5% to 116.7 million bales as most countries scale back on plantings due to lower prices. Even with this drop, USDA expects global supplies at the end of 2012-13 to hit another record for a second consecutive season.
Cotton prices on ICE Futures U.S. were trading lower in midday trade following the report. July-delivery was down 1.5% at 84.53 cents a pound, while cotton for December delivery, which corresponds to the upcoming crop, was down 1.6% to 82.03 cents a pound.
By Owen Fletcher and Bill Tomson, Dow Jones Newswires; 312-750-4120; owen.fletcher@dowjones.com
(Ian Berry and Leslie Josephs contributed to this article.)
(END) Dow Jones Newswires 05-10-121355ET Copyright (c) 2012 Dow Jones & Company, Inc.
— USDA unexpectedly hikes forecast for corn inventories, pressuring corn futures
— Report forecasts record corn yield and production for U.S. crop this year
— USDA cuts forecast for domestic soybean inventories more than expected; soy futures jump
— U.S. soybean exports likely to rise due to lower South American production
