CHICAGO, Ill. (Reuters) – With corn prices at record highs, grain traders are paying more attention to the demand outlook to gauge how big the U.S. corn supply will be in the coming months.
“In years when you typically see near-record prices, you would also see a slowdown in corn purchases by the end of the year,” said Citigroup analyst Terry Reilly.
“Also, you have South American production coming online which should cut into U.S. exports from now until the end of the marketing year.”
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The U.S. Department of Agriculture’s supply and demand report issued April 8 surprised traders by leaving the corn year-end stocks estimate at 670 million bushels.
The market had expected that the USDA would lower the number to 586 million bu. to reflect the previous week’s report, which showed a sharp decline in stocks as of March 1.
Corn futures initially dropped April 8, but by the end of the day traders bid the price higher on the assumption that USDA believes 670 million bu. is the minimum pipeline level and it can’t fall lower, so higher prices are needed to ration demand and maintain that number.
The USDA made minor changes to demand, increasing its estimate of corn for ethanol demand by 50 million bu. but lowering its livestock feed demand by the same amount. It did not change its export estimate.
High gasoline prices are supporting corn demand from ethanol producers.
Livestock feeders are expected to shift to wheat as a more economical alternative to high price corn.
The USDA also held U.S. soy ending stocks steady at 140 million bu., just above an average estimate of 137 million bu. by traders polled by Reuters.
The USDA put wheat ending stocks at 839 million bu., below the average trade estimate of 857 million.
