U.S. Corn-Surplus Estimate Increased on Reduced Feed Demand

The U.S. corn surplus before the next harvest will be 5.6 percent larger than estimated a month ago as livestock-feed demand slows because of smaller herds, the government said.

“We are moving to a point where supplies are burdensome and that will overwhelm the market, especially with global wheat inventories also rising,” said Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis. “Unless there is a weather threat to this year’s crop, the trend is lower into harvest.”

Corn futures for May delivery fell 8.25 cents, or 2.3 percent, to $3.4825 a bushel yesterday on the Chicago Board of Trade. The commodity has dropped 16 percent this year, touching $3.435 on April 1, the lowest price since Oct. 6, as demand for U.S. supplies slowed.

Larger inventories may cut costs for processors of corn-based ethanol such as Archer Daniels Midland Co. and for meat companies including Smithfield Foods Inc. and Tyson Foods Inc., which say corn-based animal feed is their biggest expense.

Livestock Feed

About 5.45 billion bushels will be used for animal feed, the department said, down from 5.55 billion estimated last month. Mounting losses last year prompted livestock and poultry producers to reduce production. Last month, the government said inventories on March 1 totaled 7.694 billion bushels, up 11 percent from a year earlier and the most since 1987.

Corn exports in the year ending Aug. 31 will total 1.9 billion bushels, unchanged from March and up from 1.858 billion bushels in the previous year, the USDA said.

About 4.3 billion bushels will be used to make ethanol, unchanged from March, according to the report. A year earlier, a record 3.677 billion bushels were used for the biofuel.

The USDA’s estimate of 13.131 billion bushels for the 2009 crop was unchanged and up 8.6 percent a year earlier. The government is scheduled to release its first forecast for this year’s crop next month.

World Corn Production

World corn production in the marketing year that ends Sept. 30 will total 805.68 million metric tons, up from 803.69 million forecast in March, on increased production in Brazil and Mexico. A year earlier, global production was a record 794.79 million tons.

China, the second-largest corn producer, will harvest 155 million tons, unchanged from March and down from a record 165.9 million a year ago, the department said. Inventories before this year’s harvest will reach 49.12 million tons, up from 48.77 million forecast a month ago and down from 53.17 million a year earlier, the USDA said.

Global consumption will reach 808.98 million tons, down from 809.93 million estimated last month and an increase from 777.16 million last year, the USDA said. It would be the first time in three years that world consumption exceeds production.

--With assistance from Alan Bjerga in Washington. Editors: Daniel Enoch, Patrick McKiernan.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

sources: businessweek, bloomberg