June 1, 2009

 

 

Planting delays in the US cornbelt this spring could lead to tight corn supplies next year, driving up prices and threatening profit margins at ethanol plants and livestock companies.

 

Slow corn planting east of the Mississippi River, including major production states such as Illinois and Indiana, could cut ending stocks by as much as 35 percent, said Allendale Inc analyst Joe Victor.

 

The USDA may have no choice but to reduce yield for the entire Midwest, reduce planted acres and send stocks under one billion bushels, said Victor, adding that the worst case scenario is that end-stocks may be closer to 750-800 million bushels.

 

Rainy conditions this spring were similar to obstacles that eastern Corn Belt farmers faced in 2002, when the USDA reduced harvested corn acres by 3.8 percent between its May projections and the January annual report, Victor said.

 

Using 2002 as a model, this year's harvested corn acres could shrink to 74.85 million acres from the USDA's projection of 77.8 million, Allendale said. Planting delays could also cut yield per acre to 146.5 bushels from the previous forecast of 155.4 bushels.

 

The prospect of a reduction in ending stocks, which the USDA forecast at a six-year low of 1.145 billion bushels earlier this month, could push up CBOT corn futures in the coming months.

 

While not enough is known to confidently forecast the 2009 US average corn yield, there could be a risk of average yield falling below current expectations, said University of Illinois extension economist Darrel Good.

 

The corn market currently reflects a low risk of such a shortfall, as CBOT corn futures have rallied close to an eight-month high this week due to good fund buying, he said.

 

The hardest hit will most likely be the livestock sector and those who are not hedged on their input needs, and the ethanol industry is likely to get hurt again, said Victor.

 

High feed costs destroyed profits at livestock companies and ethanol plants last year, leading to Pilgrim's Pride bankruptcy. 

 

There are fears of tight soy stocks, and dealers at Midwest processors have maintained firm basis bids to ensure they have enough crushing supplies to last until the new crop is harvested.

 

The USDA said 82 percent of the corn crop was planted as of May 24, behind the five-year average for late May of 93 percent, and down four percent from a year ago.

 

This year, millions of acres were seeded in less than ideal conditions, further reducing total yield potential. Much of the crop in the eastern Corn Belt was planted in fields that would have been considered too wet in April or early May, agronomists said.