Macquarie signalled that prices are on course to fall to the
low $4 a bushel as it warned investors against foreseeing a steep downgrade to
the US acreage estimate which shocked investors two weeks ago.
The bank, already one of the more downbeat commentators on
corn prices, in May forecasting Chicago corn prices averaging $4.50 a bushel in
the October-to-December quarter, said that values were for a time likely to
fall well below that level.
"We are likely to test significantly below this [$4.50-a-bushel]
level in the October-to-November period," Macquarie analyst Chris Gadd said.
The forecast reflected an "increasingly negative outlook", after
the US Department of Agriculture stunned investors on June 28 by estimating
domestic corn sowings at 97.4m acres – 2.1m acres more than expected by
analysts who had reckoned on extensive losses to a wet US spring.
Many commentators continue to believe in a further downgrade
to the US corn sowings forecast ahead, with the lateness of sowings seen
questioning the accuracy of the US data.
'Lose a little area…'
However, while "at the headline level this thesis seems to
have merit, once you breakdown into the detail of the plantings the USDA's current
forecasts look all the more reasonable", Mr Gadd said.
He acknowledged that there were instances of corn sowings
ending up far smaller than USDA June reports have indicated, with the recent
peak in 2008, when the briefing was revealed to have overestimated sowings by
well over 1.0m acres.
"But whilst we do see
variation from the June report to final plantings, the area change has normally
been less than 1m acres and on average only 300,000 acres," he said.
In years such as 1995 and 2011, similar to this year in
showing delayed plantings, the declines had been close to this average level.
"The conclusion should be that we will most likely lose a
little area from June report to the final plantings estimate, but the area
shift is unlikely to be material enough to change a bullish or bearish call."
Furthermore, hopes for the crop have been raised by the
improving condition of the crop, which has continued to improve from a somewhat
below-par start to stand at 67% good or excellent as of a week ago.
"Corn condition ratings have increased to what would be
considered a normal level for this stage of the year," and warranting a yield
estimate of 158.8 bushels per acre.
These figures suggested a crop of 14.229bn bushels, and carryout
stocks at the end of 2013-14 of 2,338bn bushels, more than three times those of
the end of this season.
Carryout stocks, in indicating the level of supplies and the
degree of competition buyers face to obtain supplies, are an important pricing
"As it now looks more likely that we will have a large US corn
crop the bearish outlook becomes more certain," Mr Gadd said.