July 2, 2007

 

US corn, soybean output report stuns trade players 
 

 

The US Department of Agriculture's (USDA) acreage report is "quite a shocker" grain industry analysts said Friday, as the rise in corn acreage and the drop in soybean seedings were beyond what anyone expected.

 

The USDA said Friday US corn acreage for 2007 is 92.888 million acres. This compares to a trade estimate of 90.585 million acres, up slightly from the government's prospective plantings figure of 90.454 million acres, which was released in late March. It is a significant jump from 2006 seedings of 78.327 million.

 

The nearly 93 million acres figure was 1 million acres above the highest trade guess, and took many by surprise.

 

Further, the fall in US soybean area was beyond expectations. Soybean acreage for the growing season is 64.081 million acres, versus a trade estimate of 67.838 million.

 

In March, the USDA said prospective plantings were 67.140 million, a drop from a 2006 acreage figure of 75.522 million. Much of the rise in the corn acreage came at the expense of soybeans, with wheat and cotton down to a lesser extent.

 

That figure was 2 million acres under the lowest trade estimate and was considered the more surprising of the two headline numbers, analyst said.

 

"The numbers were quite a shocker," said Brian Basting, commodity research analyst for Advance Trading. "High prices were an incentive to get corn planted and perhaps USDA was light in March."

 

Farmers have aggressively planted corn this season due to strong prices. CBOT corn prices recently hit 10-year highs on ethanol demand, although the expectation for a sizable expansion in acreage has take grain prices off their highs. The planted acreage is the largest since World War II, the government said. The USDA said corn acreage is up 19 percent from 2006 and 3 percent from the March intentions.

 

Given the much smaller-than-expected soybean acreage numbers, Greg Wagner, director, marketing risk management for Horizon Ag Strategies, said the market could face an "acute situation" in soybeans if August weather is stressful for soybean development. Soybeans go through pollination in August and that is when yield is set. Hot, dry weather can limit yield potential.

 

Both analysts spoke at a press briefing at the Chicago Board of Trade (CBOT) immediately following the report.

 

Sharply higher CBOT soybean futures prices are expected Friday, while corn is called just slightly higher to start. The data for corn is considered bearish so a drop in CBOT corn futures is possible.

 

Early in the growing season excessive moisture in parts of the corn belt was an industry concern that corn plantings would be slowed; however, USDA said "despite the weather related delays, growers made rapid progress and planting was completed ahead of the average pace."

 

The USDA said the soybean acreage dropped 15 percent from last year's record high and is the lowest planted and harvested area for soybeans since 1995. "With the exception of New York, Pennsylvania, and the Southeast states, planted acreage decreased in all states across the country. Growers in Illinois and Iowa showed the largest decrease in soybean acreage from last year, down 1.75 million acres and 1.35 million acres, respectively," USDA said.

 

Both analysts said with the fall in soybean acreage it is critical that South America -- both Brazil and Argentina -- expand acreage. "We have to get acres from Brazil and the only way to do that is with price," Basting said.

 

Just as US$4-plus bushel CBOT corn prices brought US farmers out in droves, a similar upward price movement is needed for soybeans to get South American farmers to plant. "Prices can't afford to back off," he said.

 

Strong CBOT prices are particularly important since Brazilian farmers are dealing with a falling real which bites into their profit levels as soybeans are dollar-denominated.

 

"The market might need to err on the side of (being too high) to encourage bean planting," Wagner said.

 

The market will look ahead to weather for both corn and soybeans for further price direction. Corn pollination time is right around the corner and if the weather remains mild, it could lead to maximum corn yields. Basting said. Even if just trendline yields are the result for corn, prices have set their highs for the year, he said. Greater than trendline might mean US farmers could produce a 13-billion bushel crop by harvest.

 

That will mean end users can rest a little easier as plentiful supplies will help livestock and ethanol producers. "It's a big sigh of relief ... which goes even as far as some policy makers," Wagner said.

 

The "food versus fuel" debate was a hot topic earlier this year when corn was at 10-year highs as some people suggested the routing of corn to ethanol versus food production was a misappropriation of supplies.

 

Even as corn supplies are likely to grow, Wagner said livestock producers must keep in mind soymeal prices will likely rise and that will add to animal feed costs.

 

Lost in the headline soybean and corn figures was wheat data.

 

The USDA said other spring wheat acreage is 13.144 million acres compared to the trade estimate of 13.835 million and the March planting figure of 13.808 million. The 2006 seedings were 14.899 million.

 

Durum wheat acreage is 1.225 million, while the trade was expecting 1.996 million. The March figure was 1.990 million, which is up from 2006's acreage of 1.870 million.

 

The USDA said total wheat planting for 2007 is 60.505 million acres. The trade estimate was 60.350 million and the March figure was 60.303 million. In 2006 all-wheat acreage was 57.344 million.

 

Wheat prices are likely to stay strong due to concerns about flooding in the southern Plains which is believed to have damaged crops, particularly in Oklahoma, Basting and Wagner said. Crop concerns in other parts of the world will continue to lend support.

 

The USDA also released its quarterly grain stocks report Friday, which shows what usage was for the previous quarter.

 

Corn stocks are estimated at 3.534 billion bushels, versus a trade estimate of 3.467. Stocks are under the June 2006 level of 4.362 billion. In March 2007, stocks were said to be 6.070 billion.

 

Soybean stocks are estimated 1.091 billion bushels, while the trade expected stocks at 1.076 billion. The June 2006 figure was 991 million bushels and in March, stocks totaled 1.784 billion.

 

Wheat stocks were put at 456 million bushels, compared to the trade estimate of 422 million bushels. In June 2006 wheat stocks were 571 million and in March stocks were 856 million.