Corn prices surged the most in two months after the U.S. reported an unexpected plunge in domestic inventories to an eight-year low, signaling stronger demand for the grain.
Stockpiles left from last year’s harvest in the U.S., the world’s biggest grower and exporter, totaled 988 million bushels on Sept. 1, down 12 percent from 1.128 billion a year earlier, the U.S. Department of Agriculture said Friday in a report. Analysts in a Bloomberg survey expected 1.145 billion, on average. Wheat inventories fell to a four-year low, and sorghum reserves were the smallest since 1996, the agency said.
Grain supplies were tightening as record Midwest heat in June and July sparked the worst drought since 1956, causing crop damage that insurers estimate may double payouts to farmers this year to more than $20 billion. Corn prices have surged 49 percent since mid-June, boosting costs that already are forcing output cuts by meat companies and ethanol makers.
“With corn inventories less than a billion bushels and wheat and sorghum stocks also shrinking, the grain trade is looking at a very tight supply situation,” Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis said. “This report signals that demand has not slowed, shifting the focus to the smaller harvest expected this year.”
Corn futures for December delivery rose by the 40-cent limit on the Chicago Board of Trade to close at $7.5625 a bushel. That 5.6 percent gain was the biggest for the most-active contract since June 25. Before the report, the price had slipped to $7.05, the lowest since July 12 and 17 percent below the record of $8.49 reached on Aug. 10.
The USDA this month predicted a harvest of 10.727 billion bushels, a drop of 13 percent from last year and down from 10.779 billion forecast in August. The agency will update its projections for major crops Oct. 11.
Friday’s stockpile tally showed a decline from the USDA’s Sept. 12 report, when the agency predicted an increase to 1.181 billion bushels because some of this year’s harvest may have been consumed in place of the 2011 crop. Dry weather allowed farmers before Sept. 1 to collect grain that normally isn’t ready until October. The government said that 1.2 billion bushels of this year’s crop were available for consumption before Sept. 1, about 700 million more than a year earlier.