Surprise rise in feed demand lifts corn prices

Corn futures extended gains, contrasting with weak performances in soybeans and wheat, after US farm officials, in a much-watched report, hiked their estimate for use of the grain by livestock farmers, maintaining a picture of tight supplies.

Chicago corn futures for May, the best-traded contract, initially soared 2.0% after the US Department of Agriculture, in its monthly Wasde crop report, added 100m bushels to its estimate for consumption of the grain as feed in 2012-13.

The upgrade reflected in particular "continued expansion in poultry production", the USDA said, besides a growing appeal by importers for US supplies of rival grain sorghum, after a disappointing harvest in Australia.

Levels of placements of eggs for hatching into broiler chickens have proved higher than initially expected, given elevated feed prices, with prices of chicken meat too proving unexpectedly strong.

Indeed, separately, the USDA hiked by 618m pounds its forecast for domestic broiler meat production in 2013.

"The data seem to show that we are not rationing feed demand dramatically," Steve Kahler, chief operating officer at Teucrium Trading, an issuer of crop-based exchange-traded products, said.

"We are looking at being left with tight corn stocks."

US bigger importer than China

The upgrade to the corn feed estimate more than offset a cut to the estimate for US exports, by 75m bushels, a downgrade which commentators had largely bargained on.

Wasde US crop forecasts, change on last and (on analyst expectations)

Corn end stocks: 632m bushels, unchanged, (-11m bushels)

Soybean end stocks: 125m bushels, unchanged, (+5m bushels)

Wheat end stocks: 716m bushels, +25m bushels, (+12m bushels)

Data for 2012-13

Indeed, with exports weak, reflecting what the USDA said was "stronger expected competition from South American corn, and from competitively-priced feed quality wheat", investors had expected officials to lift their forecast for corn inventories at the close of 2012-13.The inventory estimate was in fact kept at 632m bushels and only then thanks to a more generous idea of US imports, raised to 125m bushels (3.18m tonnes), a figure which would be, by a distance, the biggest on record.

Indeed, the US is now expected to import more corn over the season than the likes of Algeria, China and Malaysia.

US exports, meanwhile, at 825m bushels (21.0m tonnes) will be the lowest in more than 30 years.

Exports to hit a wall?

The strength in corn futures contrasted with weakness in wheat - for which the US cut its estimate for exports and raised its estimate for domestic inventories at the close of 2012-13 - and in soybeans.

Wasde world crop forecasts, change on last and (on analyst expectations)

Corn year-end inventories: 117.48m tonnes, -560,000 tonnes, (-313,000 tonnes)

Soybean end stocks: 60.21m tonnes, +90,000 tonnes (+762,000 tonnes)

Wheat end stocks: 178.23m tonnes, +1.5m tonnes, (+1.682m bushels)

The USDA surprised investors by not lifting its estimate for soybean exports, despite the country having sold in six months - more than 95% of the shipments the department has forecast for the whole year.The department said: "US exports are expected to decline in the months ahead as increased competition from a record South American soybean crop limits additional US sales during the second half of the marketing year."

Mr Kahler said: "I think the USDA is waiting for more evidence to see if it needs to make an adjustment."

By the time of the April Wasde, the department will also have results from the latest quarterly stocks report, due at the end of this month, which provides greater insight into domestic demand.

Price reactions

The dearth of adjustments to the soybean balance sheet left the Wasde stocks number for the end of 2012-13 at 125m bushels, a higher figure than analysts had expected, if still razor tight by historical standards.

Chicago soybean futures for March stood 0.4% lower at $14.67 a bushel an hour or so after the report's release, some 12 cents below their level before the Wasde.

Wheat for May was 0.5% down at $6.91 a bushel, some 4 cents below pre-Wasde levels.

May corn stood at $6.99 a bushel, a gain of 1.2% on the day, and up 5 cents since the report.

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