January 22, 2009 / 8:16 PM / 11 years ago

ANALYSIS-U.S. corn supply grows as economy shrinks

* Corn supplies in U.S. to keep growing

* Economic woes cutting demand for corn

* Corn prices to be capped or pressured this year

* All sectors affected; ethanol, feeding, exports

By Sam Nelson

CHICAGO, Jan 22 (Reuters) - Corn supplies in the United States, the world’s largest corn grower and exporter, are expanding as the global economy contracts, capping corn prices and possibly driving those prices lower later this year.

“If you look at the demand and supply perspective, corn doesn’t have much going for it right now,” said Gavin Maguire, analyst for EHedger.

“The demand is weakening from an export perspective, from a feed angle, as well as from ethanol, so there’s a triple whammy against it on the usage front and that doesn’t bode well for price prospects,” he said.

Analysts said corn stocks may reach 2.0 billion bushels near the end of this year, a big 23 percent jump from surplus supplies last year at 1.624 billion and a huge 54 percent increase from two years ago (2006-07 season).

The U.S. Department of Agriculture in its January report on Jan. 12 slashed its estimate for corn usage this year by the livestock, export and ethanol sectors. The waning demand coupled with production of the second largest crop in history last year led the USDA to increase its forecast for ending stocks to nearly 1.8 billion bushels or 21 percent more than the 1.474 billion bushel carryout estimated in December.

Analysts don’t see a shift in this trend of declining demand and robust production of corn unless a severe drought hits the U.S. this summer, cutting production, and the global economy shows some miraculous recovery soon.

“We are off to a poor start for corn exports so that could quickly be slashed another 50 million (bushels) and ethanol use gets slashed another 100 million, so you could quickly build a number close to 2.0 billion,” said Don Roose, analyst and president of U.S. Commodities, Des Moines, Iowa.

CORN PRICES TO RETEST LOWS?

The USDA in its January report slashed its forecast for corn use by the energy sector by 100 million bushels, adding to the reduction of 300 million bushels in December. In the January report, USDA trimmed usage by 50 million each from the feeding and export sectors.

U.S. corn futures plunged their daily trading limit of 30 cents per bushel after the release of that report and the market has been volatile since then.

“We wouldn’t be surprised if we retested corn’s lows in the low $3 level over the next couple of months, we could wipe a dollar off the current price given the potential for inventories to build,” Maguire said.

Corn prices soared to a record high $7.65 per bushel late last June, then plunged 62 percent to a seasonal low of $2.90 per bushel in early December.

On Thursday, the Chicago Board of Trade (CBOT) nearby or spot March CH9 futures contract was trading close to $3.90 per bushel. (Reporting by Sam Nelson; Editing by Marguerita Choy)

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