The record pace of ethanol production has prompted US officials to slash their forecast for the country's stocks of the grain by 15%, and raise farmers' hopes for prices.
The US Department of Agriculture raised by 250m bushels its forecast for industrial use of corn over 2009-10 and 2010-11 marketing years.
The revision reflected a "record pace of ethanol production and usage through March" and forecasts of further growth in production of the fuel from corn.
"Higher ethanol production is also supported by record production of gasoline blends with ethanol… and forecasts for rising gasoline demand during the summer driving season," the USDA said in its much-watched monthly report on world crop supply and demand.
The greater consumption will cut by 6.2m tonnes (245m bushels) the amount of corn in US inventories at the end of the 2010-11 marketing season in August next year.
'Very bullish'
The forecast of tighter supplies was viewed as supportive for prices by investors, who had expected only a marginal cut to stocks estimates.
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New US corn estimates, change on May, (and on market forecasts)
End 2009-10 stocks: 1.603bn bushels, -135m bushels, (-111m bushels)
End 2010-11 stocks: 1.573bn bushels, -245m bushels, (-233m bushels) |
Indeed, the USDA lifted the forecast range for average farmgate corn prices in 2010-11 by $0.10 cents a bushel to up to $3.90 a bushel.
US Commodities termed the revisions "positive" while Allendale, the rival broker, described them at "very bullish".
Ethanol questions
However, corn for July delivery fell back from the 3% gains garnered in early deals, as investors voiced doubts over whether the rosy ethanol forecasts would be achieved.
"This will be debated in the industry because ethanol margins are not very good and there is a big supply of ethanol hanging over the market," Darrell Holaday at broker Country Futures said.
"This news will make the margins worse."
Rabobank said the "magnitude of these changes is likely to come as a surprise to most in the market".
The July lot ended up 1.5% at $3.43 ½ a bushel.
Ukraine uplift
The USDA also lowered its forecast for world corn stocks at the end of 2010-11, citing the impact of the US crop and weather setbacks in the European Union.
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New world corn estimates, change on May, (and on market forecasts)
2010-11 output: 835.8m tonnes,+800,000 tonnes, (+27.0m tonnes)
End 2010-11 stocks: 147.3m tonnes,-6.9m tonnes, (+10.3m tonnes) |
"Flooding in eastern Europe and dryness during April and May in France have reduced expected coarse grains yields in these regions," the report said.
However, hopes for Ukraine's crop were lifted by 1.5m tonnes to 13.0m tonnes reflecting record plantings and a yield in line with last year's record of 5.0 tonnes per hectare.
"Corn yield has benefited from a steady improvement in technology, including an increase in the use of hybrid seed," the USDA said.
Global corn inventories will end 2010-11 at 147.3m tonnes, the USDA said, cutting 6.89m tonnes from its previous forecast.
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