Corn ending stocks are projected by USDA at “dangerously low levels.” Those low levels, coupled with ongoing drought, could send prices soaring or crashing just as they did in 2008 and 2009, when prices rose to record-highs only to crash following the Great Recession, according to Chad Hart, agricultural economist at Iowa State University, in an interview with

USDA puts the stocks-to-use ratio for U.S. corn at only 5.3 percent, well below the historical average of 12 to 13 percent, and one of the lowest stocks-to-use ratios ever, Hart noted. Last year’s corn stocks-to-use ratio was 7.9 percent, and the year before that, the ratio was 8.6 percent. The “worrisome thing” about having such a low stocks-to-use ratio for corn is that subsoil moisture is short across most of the western Corn Belt, where drought still lingers, Hart said.

“The potential for price volatility is just as great in 2013 as we saw in 2008,” said Hart. “With continued drought, we could have record-high corn prices.” If the drought ends, and the U.S. crop is a bumper, the worry is then that corn prices could plunge. “And the threat of recession still hangs over the market as well,” he added. Severe or extreme drought conditions now cover 86 percent of the Corn Belt region, with moderate drought covering 93 percent.

“Crop producers don’t need to sell right now and livestock producers don’t need to buy feed or sell animals,” according to Hart. Livestock producers want to think seriously about putting a ceiling on feed costs, though, and crop producers want to put a floor under prices through the use of options, futures, forward contracts, and other tools, he pointed out.

In a related report, The Goldman Sachs Group report that corn traders are the most bullish in seven weeks as forecasts for the smallest stockpiles relative to demand since 1974 prompted the longest rally in a year. They predict near-record corn prices.

Eighteen analysts surveyed by Bloomberg expect futures to gain next week and six were bearish. A further five were neutral, making the proportion of bulls the highest since November 30. Global consumption will exceed output for the second time in three years after drought from Europe to the U.S. parched crops, USDA reported.

Corn prices rose for eight successive days to $7.3125 a bushel by January 16 as USDA said global inventories by September 30 will be 1.4 percent lower than previously expected and, relative to consumption, the smallest since 1974. Prices had slumped for five weeks and hedge funds cut bets on a rally by 59 percent since December on expectations that South American harvests in the first half of the year would boost supply. “We’re going to see a destocking in the world of grains and products, and everyone is going to finish the season very tight,” said Chris Gadd, an analyst at Macquarie Group Ltd. in London. “Prices need to go to $8 a bushel at least in the second quarter to do the job of slowing down demand.”