March 30, 2009

Tuesday's (March 31) US planting intentions report is expected to show reduced corn acreage, as farmers switch to more soy because of higher input costs and the two crops' price relationship.

 

The US Department of Agriculture is scheduled to release the planting intentions and quarterly grain stocks reports Tuesday at 8:30 a.m. EDT (1230 GMT).

 

Analysts estimate on average that the USDA will project corn acreage at 84.548 million acres, down from 85.982 million in 2008 and lower than the government's projection of 86 million in February. Estimates from the 17 analysts surveyed by Dow Jones Newswires varied widely ranging from 81.4 million to 89.0 million acres.

 

Analysts say the grain stocks report will likely reflect decreased usage for feed and exports.

 

On average, they project that stocks as of March 1 will be 7.003 billion bushels, up from 6.859 billion at the same time a year ago. The 12 analysts' estimates ranged from 6.888 billion to 7.146 billion.

 

The CBOT corn futures market has been rangebound for several days in anticipation of the reports. Analysts say that the planting intentions report, along with the weather, will set the tone as the growing season kicks into gear in April.

 

"It's going to be a big report, a market-moving report I'd call it," said Don Roose, president of US Commodities in Des Moines.

 

Most analysts expect the acreage to drop, due in part to high input costs, the relative prices for corn and soy, and the fact that autumn field work was minimal last year due to the fertilizer costs and a late harvest.

 

The shaky economy is another factor, said Arlan Suderman, analyst for Farm Futures, which projects acreage at 82.460 million.

 

"What producers are telling us is not necessarily just about how corn and soy compare to each other. It's a risk aversion this year, not wanting to commit US$1 million to a crop in this uncertain economy," said Suderman. "They're telling us they need more of a risk premium in corn to make it worth investing so much money to put out a crop."

 

Roose said the corn-bean price ratio "is such that we think it's more attractive for soy." Corn is more dependent on fertilizer than soy, and Roose added that with input costs very high last fall, farmers did much less field work than usual.

 

"So that gives the producer to flex over to beans if possible," said Roose, who projects corn acreage at 83 million.

 

Chad Henderson, analyst with Prime Ag Consultants, said he doesn't expect corn acreage to drop off as much some in the trade have said, and that the USDA's projection Tuesday likely will be the lowest of the season, as cooperative weather leads to more acres.

 

"You don't call people in the Corn Belt corn farmers because they plant other crops; no, it's because they plant corn and they won't really stray away from that," Henderson said.

 

Two analysts in the survey estimate planted acreage would be higher. Terry Reilly, analyst for Citigroup, acknowledged that higher input costs and lower corn prices compared with a year ago are causing most to predict lower acreage. But fertilizer costs have declined from last autumn, he said, and "a good number of producers are undecided on what to plant this year." He projects acreage at 89 million acres, highest in the survey.

 

"If the trade does get a bullish surprise in the Prospective planting report, a rise in corn prices or a rapid early planting program (due to favourable Midwest weather) could shift more land to corn," Reilly added.

 

Weaker export and feed demand are seen as factors in what analysts expect will be higher quarterly grain stocks than for the same time last year.

 

Reilly, who projects stocks of 7.021 billion, expects lower exports and feed usage, offset partially by an increase in food and industrial usage, which includes ethanol. Analysts say feed is the weakest sector.

 

"This year's variable temperatures during the winter quarter and decline in poultry and hog production have hammered feed demand over the year-ago total," Reilly said. "Despite this large year-on-year decrease in feed demand during the first half of the crop year, look for a modest recovery during the second half of the season if corn prices trend lower, hog margins turn positive and cattle inventories begin to recover."

 

Jerry Gidel, analyst for North America Risk Management Services, noted that ethanol production in December was higher than expected, despite poor blending margins and 50- to 80-cents-per-gallon discounts of gasoline to ethanol at the time. Now, Gidel noted, "reformulated gasoline is only an 8.5 cent discount to ethanol," which still gets a blending credit. He projects stocks of 6.930 billion bushels.

 

Allendale's projection of 6.905 billion bushels implies usage of 3.18 billion bushels in the quarter, up from the three-year average of 3.04 billion. The increase could be seen as a surprise given the weak state of the economy, and is attributed mostly to ethanol, said Joe Victor, vice president of marketing for Allendale.

 

"As strange as it may seem, we continue to increase the total amount of ethanol we're producing."

 

He said if past history holds, the trade will most likely focus on Tuesday's stocks number, which likely will be bearish. But the usage number itself should be supportive, Victor said.