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WASDE preview: Trade expects more corn

02/05/2013 @ 3:57pm

Analysts expect U.S. forecasters Friday to cut their estimates of demand for U.S. corn and to raise their forecast for domestic stocks of the grain.

The U.S. Department of Agriculture at noon EST Friday will release its monthly world supply-and-demand report, including forecasts for the size of domestic grain and soybean inventories this year. The report will also include updated estimates for the size of the current corn and soybean crops in Brazil and Argentina, major exporters of the two commodities.

Grain traders will closely watch the figures, which could cause significant price swings in futures markets if they come in above or below expected levels. U.S. supplies of corn and soybeans are both at historically low levels, due partly to last year's severe drought.

Analysts on average expect the USDA to forecast U.S. corn inventories as of Aug. 31, the end of the current crop year, will total 615 million bushels, according to a survey of 18 analysts by Dow Jones Newswires. That would be up 2% from the USDA's forecast last month of 602 million bushels, and down 38% from inventories at the end of the last crop year.

"Last month you've probably seen the lowest corn stocks estimate going forward, and I think it'll probably just continue to rise," said Joel Karlin, a market analyst for Western Milling, a Goshen, Calif., firm that sells feed grains to livestock and poultry companies.

The higher estimate for stockpiles would be based on cuts in the agency's forecasts for corn demand from ethanol producers, the livestock industry or foreign buyers.

A string of U.S. ethanol plants in recent weeks have idled or slowed production as the industry struggles with weak margins, due to sluggish gasoline demand and high corn prices after last year's drought.

Export demand for U.S. corn has been weak for months, as foreign buyers have tended to purchase supplies from South America instead. "You could certainly see a 50 million bushel cut from exports," Mr. Karlin said.

Some traders also think demand for corn used in animal feed--an estimate the USDA substantially boosted last month--could be weaker than expected.

Allendale Inc., a brokerage in McHenry, Ill., expects the USDA this week to cut its demand forecasts for both exports and ethanol, and it predicts further cuts to demand estimates in coming months. Later in the year, the USDA could raise its forecast for domestic corn stocks to more than 850 million bushels, Allendale said.

For soybeans, analysts on average expect the government to forecast U.S. inventories as of Aug. 31 at 129 million bushels, down 4% from the USDA's last forecast and 24% below the level a year earlier. Soybean demand has remained strong from both foreign importers and U.S. processors.

Traders will also watch the USDA's forecasts for corn and soybean production in South America, particularly because recent dry weather in Argentina has threatened crops there.

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