June 25, 2007

 

Analysts divided on 2007 US corn acreage projections

 

 

Although corn planted acreage this spring was estimated to jump to its highest level since World War II, analysts are split on whether there will be an increase or a decrease from the March estimate when updated acreage numbers are released next Friday (June 29).

 

In March, the US Department of Agriculture (USDA) forecast that US farmers would seed 90.454 million corn acres, up 12 million acres from the 78.327 million planted in 2006. The high expectations came as producers responded to the highest prices in over a decade on strong domestic and international demand for corn - partially as a result of the ethanol craze.

 

Several factors are contributing to the uncertainty about the March estimate, analysts said. Poor early season growing weather in parts of the US Midwest - some areas were too wet during planting and others too dry after the crop was planted and replanted to other crops - may have impacted the amount of corn farmers seeded.

 

In addition, the high price of soybeans during the spring might have tempered producers' enthusiasm to switch from planting soybeans to planting corn this year, analysts noted.

 

Normally, "you don't see a large shift in acreage from the March intentions report to the June report," said Dale Durchholz, senior market analyst at AgriVisor.

 

"Personally, I have a bias against expecting any huge increase in corn acreage."

 

Corn acreage usually increases when planting occurs early. This spring, however, there was not a lot of corn planted early in April as the weather precluded planting at that point in time, he said

 

In addition, the soybean market held its price strength along with corn this spring, which limited switching any huge amount into corn, Durchholz said.

 

Despite the strength in soybean prices, Durchholz predicts corn acreage will increase by 500,000 acres from the March estimate with the majority of the increase coming from the traditional US Midwest corn producing states.

 

In this decade, corn acreage has tended to increase by roughly 600,000 acres from the March estimate to the June estimate, and that trend will probably continue this year, he said.

 

Poor early season planting weather across much of the US Midwest will likely lead to a decline in corn acres from what the USDA forecast in March, another analyst noted.

 

Corn planting was delayed into the middle of May in several major corn producing states, and that led to lower acreage, said Mike Zuzolo, chief analyst at Risk Management Commodities, in Lafayette, Ind.

 

As of May 13, corn planting in Iowa was 25 percentage points behind the pace in 2006 and Nebraska was behind by 23 percentage points, Zuzolo said. The delay in planting corn likely led farmers to add more soybean acres and reduce corn seedings, he said.

 

In 2006, Iowa and Nebraska were the largest and third- largest US corn producing states, respectively.

 

Drought in the Southeastern, Mid-Atlantic and Delta states, where farmers were expected to plant more corn acres this spring, probably limited the amount actually seeded in those areas, Zuzolo said.

 

In Tennessee, Georgia, Mississippi, Louisiana, the Carolinas and Alabama, farmers intended to increase corn acres by over 2 million acres. However, due to the drought conditions in these states up to 50 percent of the expected increase has been lost or switched into other crops, he said.

 

Based on these factors, corn planted acreage will be 89.254 million acres, down 1.2 million from the 90.454 million projected in March, Zuzolo said.

 

Although the southeastern US has experienced a drought this spring, Durchholz discounts the idea that much switching into other crops has occurred.

 

The use of crop insurance by farmers to protect themselves against financial risk from adverse weather or natural disasters is also expected to mitigate against the switching to other crops, depending upon location, said Zuzolo.

 

"I think once we got into the planting game itself, things were pretty well set for insurance purposes," Durchholz said. Insurance structured what farmers would do and limited movement out of corn. As long as farmers have insurance they can still shift acres, but in the South people who have already planted corn and applied herbicides, probably precludes them from switching and planting soybeans, he said.

 

In the western corn belt the insurance is a factor, however, in places where it gets hot and dry after May. Farmers might have switched into more drought tolerant crops such as milo or soybeans, Zuzolo said.

 

Any harvested acreage decline from planted acreage will be noted in reports released later this year, not in the planting report, Durchholz said.