Enough corn in U.S. for food and ethanol, for now

CHICAGO (Reuters) - U.S. government data on Friday showed there is sufficient corn for the United States to supply itself with food and ethanol through next year, but the outlook hinges on cuts in exports and less of the grain being used as feed.

It is also hugely dependent on good weather in America's corn country, always a risky bet.

"This morning's crop report is an ominous sign that we are entering dangerous and uncharted waters for food prices," said Scott Faber, vice president of federal affairs for the U.S. Grocery Manufacturers Association, a trade group.

Right now, wet and cold weather is threatening to slash corn plantings and trim yields at a time when every bushel is needed to meet the soaring demand for food and for fuel. And extremely hot weather at the wrong time this summer could further trim corn supplies.

"Any way you look at it, the government really had to stretch ... to keep you above pipeline minimums," said Don Roose, analyst and president of U.S. Commodities, Des Moines, Iowa.

USDA in its May supply/demand report released early on Friday estimated surplus corn stocks in the United States at the end of the new-crop marketing year (2008/09) at 763 million bushels, nearly half of this year's 1.383 billion-bushel supply yet still within what is considered a "comfortable" level.

The 2008/09 or new-crop marketing year will end on August 31, 2009.

The government's estimate for corn supplies next year is more than an average of analysts' estimates for 685 million and a lot more than some analysts were expecting such as Joe Victor of Illinois research and advisory firm Allendale Inc.

"Given the current status, with politicians talking about mandates and talking about the likelihood of decreasing the incentive for ethanol production, I think it would be suicidal for USDA to bring those ending stocks down below 650 million bushels," Victor said.

Ending stocks refer to how much corn is left over after all domestic and export needs have been met.

Allendale believes next year's corn supply will be just under 500 million bushels.

"I don't think the USDA wants to shock the world into higher food prices," Victor said, referring to the government's larger-than-expected corn supply number.

Corn prices already are at record highs, and the debate over whether to use corn for food or for fuel will likely escalate since few expect the U.S. government to back down on its ambitious green fuels agenda.

Indeed, USDA is penciling in 4.0 billion bushels of corn to be used for fuel next year, a third of expected total production at 12.125 billion and up from the 3.0 billion bushels for fuel this year or roughly a quarter of corn output.

USDA forecast the amount of corn to be used for feed at 5.3 billion bushels, down 14 percent from this year, and exports were pegged at 2.1 billion, down 16 percent from this year.

"They had to cut corn feeding by 800 million bushels to get this thing to where you have a 760 million carryout," said Roy Huckabay, analyst for The Linn Group, a Chicago trade house.

USDA also forecast the ending supply of soybeans next year at 185 million bushels, below analysts' estimates for 270 million, but U.S. wheat supplies were boosted to 483 million, nearly double the wheat supply this year.

"I think it tells me that you are going to have to get into a rationing phase at some point. It tells us that on corn and beans your margin of error is almost nonexistent," Roose said.

(Reporting by Sam Nelson, editing by Matthew Lewis)