February 22, 2006

 

Factors weigh in as US farmers decide to plant corn or soy

 

Several new factors will weigh in as farmers decide whether to plant corn or soybeans this year. Current world production and demand prospects however, seem to favour corn planting over soybeans, according to Darrel Good, a University of Illinois Extension marketing specialist

 

The popular sentiment that US producers will reduce corn acreage and increase soybean acreage in 2006 contradicts market economics, Good said.

 

One reason farmers may increase soybean acreage this year is the sharp increase in corn production costs over the past few years, Good said. Concerns about a dry season in 2006 might also push farmers towards growing soybean due to the belief that it is more drought-tolerant.

 

However, in the US, there is a high likelihood of rapid expansion in the use of corn for ethanol production. That use is projected at 1.6 billion bushels in 2006, 277 million bushels more than last year and 432 million bushels more than two years ago.

 

Domestic feed and residual use of corn during the 2006-07 marketing year will also  be supported by expanding beef, pork, and poultry production. However, the  increase in feed use of corn might be curbed by increased production of by-product feeds from the ethanol industry. One sixth of the corn used for ethanol could be returned as corn feed for animals, Good said.

 

Still, US corn export prospects will improve for at least two reasons, he noted. Firstly, there have been projected reduced yields in Argentina. Current USDA projections put the Argentine harvest at 610 million bushels, about 160 million smaller than the 2005 harvest.

 

Secondly, China will eventually be less of an export competitor and become a net importer of corn. The US could easily experience an increase of 150 million bushels in export demand from reduced competition from China in the year ahead, Good said.

 

If corn consumption increases over time, as expected, more US corn acreage will  be needed, Good said.

 

The need to expand soybean acreage on the other hand, is less obvious, he added.

 

The 2006 South American crop is expected to be record-large, and excess stocks are expected both in the US and globally.

 

Growth in consumption of US soybeans is expected to slower than the growth in corn consumption, Good said.

 

Although domestic soymeal consumption for livestock feed should grow at a rate similar to corn, the main difference is that the scale of fuel use of soybean oil will be much lower compared with ethanol use of corn. Even if exports of US soybeans is supported by growing Chinese demand, there will be stiff competition from South America, Good added.