April 2, 2007

 

Biggest corn plantation seen in US farms this year due to ethanol

 

 

Farmers in the US plan to increase their corn-growing area by the largest amount seen over a 12-month period in more than 100 years, as they try to cash in with the ethanol rush, the US Department of Agriculture said yesterday (April 1).

 

On Friday, the USDA reported that US farmers intended to grow 90.5 million acres of corn this year, the biggest since 1944.

 

The shift is also seen to affect US and global agriculture industries, particularly food, as this will bring the food-versus-fuel debate further into focus as more arable land in the US is used for fuel crops than for food at a time when global food demand is growing due to increased wealth and rising populations.

 

Grain analysts said the reduction in soybean growing could lead to falling stockpiles, which could increase prices and result in livestock farmers paying more for animal feed made from soybeans.

 

Cotton planting in the US is also expected to fall to its lowest level since 1989.

 

The corn boom will also put more pressure on Brazilian and Argentine soy farmers to increase production to fill the gap in export markets left by the US.

 

Although US farmers are planning to grow more corn, the harvest will still be dependent on the weather, according to James Bower, an analyst at Bower Trading. He said there was a concern that the heavy rains poured by La Nina weather phenomenon in March and April, and a dry summer might affect the corn crop.

 

Farmers' choice of crop is driven by price as the doubling price of corn translates a surpassing cash return per acre from other crops.

 

The USDA estimates demand for corn for ethanol production will rise 50 percent or 3.2 billion bushels in 2007. US ethanol demand has been boosted by government legislation on its use as a blender with conventional petrol and from its subsidies.

 

Based on the USDA corn yield forecasts, potential US corn production in 2007 could be well over 13.5 billion bushels - the biggest for the world's largest corn producer. A projected record in corn acreages, which were 4.5 million acres above USDA estimates, dragged corn futures prices down by their maximum allowable amount on the Chicago Board of Trade yesterday.

 

The May corn futures contract dropped 20 cents to Dollars 3.7450 a bushel, down from its 10-year high of Dollars 4.37 reached a month ago.

 

Hedge funds have been very active in US grain futures leading up to yesterday's report.

 

Soaring prices of corn have also triggered international dispute such as in Mexico where the crop is used as a staple for tortillas for the impoverished.

 

Cuban leader Fidel Castro was quoted from an editorial in a Cuban daily newspaper as saying President Bush's ethanol plan could drain corn and other food stocks in developing nations, putting the lives of 3 billion people at risk worldwide.

 

A bushel of corn for May delivery was trading at US$3.74 a bushel Friday (March 30) on the Chicago Board of Trade, down 20 cents from Thursday (March 29).

 

Agriculture industry analyst David Driscoll, of Citigroup Research, said he expects the enlarged corn acres to cause the price of corn to fall to about US$3 a bushel by December.

 

Bob Ray, a senior vice president at the Chicago Board of Trade, said predictions that corn prices will continue to decline because of plentiful supply from a huge harvest must be balanced with increasing demand from the export market.

 

Both China and India have sent signals recently that they'll import significant amounts of US corn. China earlier said it can't readily increase enough corn to feed their surging growing livestock market and India has recently lowered tariffs, indicating plans to import grains from the United States.

 

The European Union has also expressed its interest to source its corn from the US which is required to implement renewable fuel law which doesn't have enough land to set aside grains for ethanol.

 

John M.A. Roy, an ethanol analyst for WR Hambrecht and Co., predicts that ethanol demand will grow by at least 32 percent in 2007 but the issue of high-priced corn will still remain.

 

Besides a drop in soybean and cotton plantings, rice was expected to decline 7 percent to 2.64 million acres.

 

Some grains are expected to rise. Wheat is expected to rise 5 percent with 60.3 million acres. Other increases include: sorghum, up 9 percent; canola, up 12 percent; and barley, up 7 percent.

 

The USDA figures of actual acres planted for the year will be released on June 29.