February 26, 2013

US prepares to expand corn acreage

After drought damaged record US harvests predicted by the government, US farmers from South Dakota to Ohio are preparing to plant the most corn in almost eight decades.

"Farmers are looking for every acre possible to plant this year," said Bill Bayliss, 67, who is expanding acreage by 10% on land he farms in West Mansfield, Ohio. "The price is attractive, and we have seen an improvement in soil moisture."

Corn acreage in the US, the world's top grower and exporter, will be the largest since 1936, yielding an all-time high of 13.863 billion bushels at harvest should weather conditions improve, the average of 17 analysts' estimates in a Bloomberg survey shows. The USDA, in a report this week, predicted output will jump 34.8% to a record 14.53 billion. Futures contracts show traders expect corn prices to fall 19% by December to US$5.585 as supply grows after the harvest, cutting costs for livestock producers and ethanol distillers.

While adverse weather the past three years prompted the USDA to back off predictions made in May before planting started, corn prices that are higher than 2012's record average mean the crop remains profitable.

"We are in a major transition to a more-abundant supply situation," said Don Roose, president of US Commodities Inc. in West Des Moines, who grows corn and soy on his farm. "We have sent a clear price signal to the rest of the world to produce more corn." Prices may drop below US$4 a bushel in Chicago this year, he said.

Corn futures that reached a record US$8.49 in September have fallen 6.4% this month on the Chicago Board of Trade. The Standard & Poor's GSCI Spot Index of 24 commodities is down 2.1%, and the MSCI World Index of shares fell 0.7%.

Farmers have the capital needed to boost production of corn, the biggest domestic crop valued at a record US$77.35 billion in 2012, as the financial condition of US agriculture has never been better, government and Federal Reserve data show.

Farm income will jump to a record US$128.2 billion this year, Midwest cropland values are the highest ever and the ratio of debt to equity is the lowest on record at 11.3%, according to the USDA. While the worst drought since the 1930s cut output by 13% last year, farmers were protected from losses by crop-insurance pay-outs that reached an all-time high of US$14.7 billion.