Dry and hot weather in South America's key grain growing areas are expected to dent global corn supplies and bode well for US exports, Barclays Capital said in a research note to investors.
Corn is the primary feedstock for ethanol production in the US.
Abnormal weather conditions in Argentina and Brazil, key producer-exporter countries, are likely to impact production estimates in the next US Department of Agriculture report on global grain inventories, due out Thursday.
The closely watched USDA World Agricultural Supply and Demand Estimates report, or WASDE, projected December world corn output for the current marketing season at 867.5 million mt. Production in Argentina, the world's third-largest producer of the grain behind the US and China, was estimated at 29 million mt.
Going forward, attractive corn pricing conditions are expected to draw extra acres in the upcoming US spring planting season, Barclays added.
But uncertainty regarding fertilizer prices, input costs and the recent weak performance in US corn yields might hinder any projections, the bank said.
ETHANOL
On the demand front, Barclays claimed the end of a 45-cents gallon ethanol tax credit to blenders on December 31 could result in lower US ethanol output and weaker production margins.
Ethanol production accounts for approximately 40% of the US corn supply.
The recent spike to record high ethanol production levels registered in the week ended December 30, at 963,000 b/d, was largely driven by the expiration of the tax credit, the bank said.
But rising US corn prices are likely to keep pressuring ethanol margins and production levels, with government-mandated use of the biofuel keeping output flat at lower levels, Barclays added.
March-delivery corn futures at the Chicago Board of Trade, currently the most negotiated contract, surged by 8.5% since the start of December to settle at $6.52/bushel Monday.
