Analysts foresee reduced US corn area

 

 

Soggy weather that kept US corn growers out of the fields for much of the planting season, particularly in the eastern corn belt, are expected to be reflected in less corn acreage in the government's planted acreage report this week.

 

Meanwhile, grain stocks as of June 1 are expected to be slightly higher than they were a year ago, as reduced feed demand keeps supplies at a comfortable level.

 

The US Department of Agriculture will issue both the acreage and the grain stocks reports Tuesday (June 30) at 8:30 a.m. EDT (1230 GMT).

 

The acreage report in particular has been highly anticipated and could set the market's direction through the rest of the summer, analysts say, although they note that weather for the developing crop will remain the wildcard.

 

The trade on average is expecting the USDA to peg corn acres at 84.158 million, down from the March projection of 84.986 million. Estimates from the 18 analysts surveyed by Dow Jones Newswires ranged from 82.474 million to 86 million acres.

 

Analysts cite two reasons for the expected drop.

 

Relentlessly wet and cool weather in parts of the Corn Belt delayed planting throughout the spring. Some farmers unable to seed their corn in the optimal planting window switched to soy, which have a later growing season, or in some cases decided not to plant at all, analysts said.

 

Illinois and Indiana, two key corn-producing states, had a particularly unfavourable spring, and farmers in North Dakota and Ohio also experienced problems.

 

Arlan Suderman, analyst for Farm Futures, which had the lowest projection in the survey, said the estimate was based on farmer surveys and reflected steep drops in the areas that had the most unfavourable weather during the spring.

 

Allendale, which projects a modest cut in acreage of 211,000 acres from the March report, sees acreage losses in some states to be mostly made up by gains in Nebraska and Iowa.

 

"Our 84.775-million-acre estimate is still the third largest in the past 50 years," Vice President/Marketing Joe Victor said in a press release.

 

Another reason for limited corn acreage, analysts said, is that while prices for commodities in general climbed during the spring, soy soared, making them more attractive to farmers still weighing whether to plant corn or soy.

 

"The ratio of new-crop soy to corn prices, having reached a low of 1.97 ahead of the March 31 Prospective Plantings report, moved steadily toward favouring soy thereafter," JPMorgan said in a report preview.

 

Soy prices climbed 31 percent higher following the report, while corn was up just 19 percent during the same period, according to Rabobank.

 

Although the market has been assuming a loss of at least a million acres of corn in recent weeks, many analysts say it would not be a shock if the number of acres stays relatively steady or even increases.

 

The bearish scenario is based on widespread assumptions that the USDA overestimated total acreage for all crops in the March report.

 

Citigroup analyst Terry Reilly, one of three analysts in the survey who forecast an acreage increase, said the USDA's total planted acreage estimate was "way too low" in March. Between corn, soy and wheat, planted acreage was projected more than 5 million acres lower than in 2008. The USDA also projected reduced acreage for other crops.

 

Reilly and some other analysts say that the corn acreage will rise along with other crops as the USDA corrects its low estimate in March. Reilly adds that a "fantastic" planting season in much of the Corn Belt will balance out the loss of acres in the east, and that corn could even pick up a few acres in North Dakota, where some farmers had to abandon wheat planting because of poor weather.

 

Although a minor drop or increase to corn acreage would be considered bearish, analysts note that the market has already dropped sharply the past couple weeks and that further downside could be limited.

 

The report is seen as key to the market's direction, although outside markets, particularly the dollar, and weather forecasts will remain important.

 

"When the yield continues to look like it's not being challenged, (the acreage report) is less of an issue, but it's certainly the dominant issue coming up," said Don Roose, president of US Commodities in West Des Moines, Iowa.

 

Analysts expect that the USDA will peg quarterly grain stocks as of June 1 at 4.190 billion bushels. The 15 estimates in the survey ranged from 4.064 billion to 4.321 billion bushels.

 

The ending stocks would be higher than the 4.028 billion bushels recorded for the same time last year, reflecting weakened feed demand.

 

Newedge analyst Dan Cekander said in a report that the trade will be looking to see if higher-than-expected corn feed/residual use reported from December through February persisted from March through May.

 

"Lower animal numbers, negative feed margins in cattle and hogs and increased supplies of (dried distiller grains) should have contributed to a lower rate of corn feeding during the third quarter," Cekander said. Newedge projects stocks of 4.140 billion.

Analysts say that while export demand for corn has remained strong, the feed sector has struggled amid the recession. Also, while ethanol producer margins have improved thanks to rising energy prices, questions remain about demand.

 

"We expect few surprises, with soybean inventories confirming very tight supply while near-term corn remains comfortable," JPMorgan said in its report.