Farm News
04-07-06
Five percent drop in corn acres predicted
By KRISTIN GREINER- Farm News staff
Recent rains may be just one of several factors prompting producers to plant
more corn, defying the estimated drop in Iowa’s planted acres as detailed in the
March 31 USDA prospective planting report.
The report pegs Iowa’s planted acres at 12.5 million, down 2 percent, or 300,000
acres, from last year’s actual planted acres. Steven Johnson, farm and
agriculture business management field specialist with Iowa State
University Extension, said that it’s key to remember that the annual USDA
report is a “prospective” reportî that uses survey methods with responses
gathered in late February and early March from a sample size of approximately
87,000 producers nationwide.
With that in mind, in the past 20 years, the actual corn planted acres has
exceeded the March estimate 14 times and exceeded the soybean planted acres
13 times. The margin of error for both acreage estimates at the 90 percent
confidence interval is 3.5 percent.
“It’s really too early to say that the corn planted acres in Iowa and nationally will
drop that low,Ӕ Johnson said.
Johnson said he does not disagree with the USDA report, especially since it is
simply a preliminary estimate, but that two recent events have occurred since the
survey data was gathered, one being that a large portion of the Corn Belt
received replenishing rainfall this week.
“The shift to fewer acres of corn and more soybeans was even greater in the
other major ‘I’ states as compared to Iowa,”î Johnson said.
The demand base for corn also continues to expand in Iowa, Johnson said, due
to the need for more corn for livestock feed needs and the rapid expansion of the
ethanol industry.
“Many central and north central Iowa farmers with deep loam soils that can bank
recent rainfall will respond to the report by planting more corn acres,î” Johnson
said. “Most had already planned to do so and have secured seed, fertilizer and
fuel in advance. Other farms may plant a few more corn acres with the change in
new crop pricing opportunities since the report was released.î”
While recent rains may have prompted producers to close that deficit gap in
planted acres in Iowa, weather in April and May will be the key factorî impacting
final planted acreage, Johnson said.
“The inelasticity of demand will continue to support corn prices over those of
soybeans based on projected supply and demand for both crops. Without
widespread weather, disease or insect problems for the U.S. soybean crop, I look
for soybean prices to struggle as the South America crop grabs the global export
market,î” Johnson said. “I could see LDPs on soybeans by harvest and as cash
soybean prices fall below the county loan rate.”
Bob Wisner, a grain economist at ISU, said the smaller-than-expected U.S.
corn planting intentions would make corn prices quite sensitiveî to any
widespread planting delays or weather problems during the growing season.
“With the 5 percent decline in potential U.S. corn planted acres, a normal yield
would produce approximately 900 million bushels less corn than next season’s
potential utilization. Because of large old-crop carryover stocks, that difference
would not be expected to create a corn shortage, but would almost certainly push
corn prices moderately above the level of the last two years,” Wisner said.
“Widespread weather problems and a U.S. yield 6 percent below the long-run
trend would produce a crop about 1.7 billion bushels below potential utilization,
and would require sharply higher prices to ration usage.”
Johnson said he encourages producers to have a pre-harvest crop marketing
plan for both corn and soybeans.
“The well managed farm that knows their cost of production and has the ability to
‘plant for profit’ will likely excel again in 2006. Those farms that are only
managing production costs without thinking ahead about marketing opportunities
will likely struggle,” he said.
Seasonally, the best pricing opportunities for both old crop and new crop corn are
in early April through late May, Johnson said.
“This is because the futures market typically builds in a premium for the
uncertainty of the U.S. corn crop to be planted. If there’s one best week to price
corn, it’s the first week of April according to corn seasonal price trends. Cash flow
projections for central Iowa farms would favor corn over soybean acres,”
Johnson said. “It’s more than just the cost of production, but also the marketing.”
With forward cash prices to processors already exceeding $2.50 per bushel for
next winter and spring delivery, a profit “can be penciled in”î for forward priced
bushels, Johnson said. He said he expects a wide-harvest basis again this fall for
both old and new crop corn and soybeans unless regional production problems
occur.
“Thus, the use of forward cash contracts, futures hedging or options strategies
for marketing corn will allow for a profit on many Iowa row crop acres,” he said.
“The success of farms with on-farm storage and access to trucks for cheaper
transportation direct to the processor will be magnified this next year, especially
should the growing year be normal and pre-harvest sales strategies be
implemented.”
Johnson said the rapid expansion of the ethanol industry, along with more carry
in the futures market and basis opportunities outside the harvest months, is
“changing the playing field” in Iowa agriculture.
“Larger scale farms may more easily adapt to additional corn acres in the future
as they access capital, labor, machinery, storage and the transportation of a crop
that could easily yield three to five times more bushels per acre than soybeans,”
he said.
In response to the bearish USDA report, the Chicago Board of Trade corn futures
markets rose dramatically. May and July corn contracts opened 14 and 13 cents
higher.
Paul Bertels, director of biotechnology with the National Corn Growers
Association, said that higher corn prices “may still bid some additional acres into
corn, as most farmers in the Midwest have not started planting.”