Special Reports
In addition to producing regular intraday market commentaries, EHedger LLC’s dedicated research team creates various reports and outlooks covering all pertinent aspects of the commodities arena, including USDA Crop Report previews and analyses, global producer perspectives, yield assessments, input analyses and several other relevant topics.
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Posted on Agriculture Online, March 26, 2009
Overview
The March 31 USDA Planting Intentions report is always one of the most significant reports of the year for the corn and soybean markets, as it takes the first stab at putting together the acreage jigsaw for the nation’s two major crops, and allows analysts to start compiling balance sheets with government-approved numbers. Of course, these projections are still moving targets for the next several weeks as the weather and price action will still have much to say about exactly what can and will get planted, but overall the March 31 numbers help ‘frame the debate’ for the planting season ahead.
What The Market Is Thinking
There seems to be a consensus that US farmers will substantially increase soybean planted acreage this year in response to the enduring strength in soybean prices, and the broadly bullish demand outlook for the crop over the coming years. We tend to agree with that assumption, and are anticipating a 3-5 million acre increase in plantings this year from 2008’s 75.7 million planted acres.
However, we disagree with the arguments that the additional bean acres we’ll see this year will come at the expense of corn. We think instead that the beans will mainly claim the extra acres from cotton and recently retired CRP (Conservation Reserve Program) land that is set to return to active duty for the 2009 season. We’re projecting around a 1.5 million acre drop in cotton planted acres, while more than 1 million acres of CRP land looks set to come on-stream again for this spring. We also anticipate that soybeans will win the lion’s share of the additional land available for spring production after US winter wheat plantings declined by roughly 4 million acres this past winter.
With regard to corn, we believe corn acres will not decline as aggressively as most other market forecasters, and in fact would not be surprised to see corn acreage post a modest gain when all is said and done. Most of the arguments for lower corn acres rest on the assumption that farmers are still faced with the high input costs that prevailed last fall that make $4 corn economically unappealing. But it is clear that fertilizer and fuel prices have fallen dramatically over the past 4-6 months, improving corn’s economics dramatically.
Further, US farmers have shown time and again that they are very good at raising corn – even when faced with challenging growing conditions such as those seen a year ago. We believe this strong track record will keep farmers who routinely get 190 bushels per acre or higher on their corn fields committed to that crop, no matter what the soybean price does over the coming weeks. As a result, we are estimating that 2009 corn planted acres will likely only decline by around 1 million from last year’s 86 million, and may even gain a few acres year-on-year if fertilizer prices continue to come down in key growing areas and corn prices hold firm.
Conclusion
Although the March 31 report will only be a starting point in determining the acreage make-up for 2009, it will provide the foundation on which market expectations will rest throughout the planting season. Also, while the recent rains in the northern Midwest will hamper early fieldwork, there’s still plenty of time for fields in key states to dry out, so it’s too early to worry about late plantings just yet.
Right now, our suggestion to farmers who are wondering what to plant is to stick with what you’re good at. Given all the moving targets out there that determine harvest-time prices – such as the US dollar, end-user profitability, investor appetite for commodities – it is too difficult to try to guess today what will be the most profitable crop tomorrow. Instead, we advise producers to focus on growing the crops they’re familiar with and know how to grow – but to also put a plan in place that protects their selling price in case we see a period of excess production or soft demand.
There’s a real chance soybean prices tumble if that crop wins more than 4 million acres, so soy producers would do well to move to lock in a price floor before too long. As for corn, we admit that a steep acreage loss is possible which would be supportive for prices. But, we believe that it is much more likely that farmers will stick to rotation practices and maintain fairly steady corn production levels. In the current environment where corn end-users are struggling to report profits with current corn prices, the prospect of steady to high output could also weigh on prices over the coming months.
Today’s marketplace offers growers very effective tools to manage price risk. Those growers who use those tools to their advantage and get on with the hard work of growing crops will do very well this year.
2009 Outlook Special
2009 Planting Decisions: Leave Your Options Open
Posted in the December issue of Corn & Soybean Digest Nov 30, 2008 12:00 PM
As you turn your attention to planting considerations for 2009, a number of factors need to be tracked closely at both the local and global level to maximize profit opportunities. But just as importantly, you will need a new mindset that recalibrates price expectations down from last summer’s spectacular highs to more realistic levels that still represent a significant premium to historic averages.
It’s easy to get despondent at the aggressive price slides we’ve seen in corn and soybeans since July, and cling to the hopes that those highs are attainable again.
We believe this summer’s perfect storm of events is highly unlikely to materialize again any time soon. Plus, this fall USDA unearthed an additional 3 million acres of productive land that had previously been unaccounted for - and presumably will still be in play next spring.
Excellent profit opportunities may well surface in 2009, but only growers alert to the right signals and flexible enough to move quickly will be able to fully grasp them.
Keep close tabs on fertilizer prices. We believe a marked decline could surface by mid-March 2009, which will boost corn’s appeal to many farmers and could notably increase corn acreage from 2008 levels. Of course, this is still a big “if” at this point, but a number of factors suggest lower fertilizer prices are on the way - both here and abroad.
ANOTHER IMPORTANT ISSUE is the chance that limited credit for South American farmers may hinder their expansion plans. Should that be the case, acute pressure on U.S. farmers to plant more soybeans next year will result, we believe. Our final key factor to consider going into 2009: There’s no doubt the soybean market has been knocked off stride by USDA’s unearthing 2 million extra U.S. soybean acres planted this past growing season. That enlarged acreage pie has certainly alleviated some of the tension underpinning the soybean market in recent months, and raises questions about how many acres this crop needs to hold in 2009. However, global soybean inventories remain historically tight, while usage is still on an upward trajectory. In light of the fact that the most critical growing phase for South American producers still lies ahead, it’s critical that U.S. farmers who have not yet allotted all their acres keep space available for additional soybean production should weather issues affect Southern Hemisphere bean emergence this winter. Weaker fertilizer prices will certainly make corn an appealing crop for many growers, but soybean prices have the potential to outperform to the upside should Brazilian or Argentine producers stumble over the coming months.
It is this potential for a new year soybean rally just as corn becomes potentially more economical - and therefore popular - that makes us stress the importance of grower flexibility over the coming months.
Leaving your options open may enable you to capitalize on favorable price moves while staying within your core strengths, and avoid a potentially detrimental stampede into corn merely because declining fertilizer prices improve crop economics.
In all, 2009 may lack the fireworks of this year, but we believe that with diligence and flexibility the informed farmer can make it one for the history books.
