By ANN HINCH
Assistant Editor WEST LAFAYETTE, Ind. — Gambling at roulette gives one immediate financial loss or profit. But, for farmers and others in the agricultural industry, it will be late June before they know for certain the number of acres planted to corn, soybeans, wheat and other crops in 2008.
The gambling analogy might be apt. Things over which humans exercise some control – price incentives in the commodities market, export and livestock and ethanol demands, fertilizer prices, federal mandates for biofuel, oil prices – still can’t trump weather for being the biggest factor affecting planting success in any year.
Purdue University ag economist Dr. Chris Hurt pointed out too-wet or -cool weather this month could push corn planting so late that some of those acres turn to soybeans by necessity. If conditions remain favorable for corn, however, he and fellow Purdue ag economist Dr. Corinne Alexander believe corn could gain as many as 3 million acres over the 86 million projected in last week’s USDA Prospective Plantings report.
“And that has to happen in the next few days,” Hurt said of farmers’ decisions to plant more corn.
The two led an evening video broadcast to several Indiana county extension offices last week, following the USDA’s March 31 report. Alexander said the National Weather Service’s long-term forecast is “battling against” getting early corn into the fields.
There is some disagreement between cool long- and warm short-term forecasts for April, and there is above-average topsoil moisture across Illinois, Indiana and Ohio, as well as subsoil moisture as far down as six feet in some areas. On top of that, the economists said dry weather is predicted across the western Corn Belt this summer, sweeping up through Iowa as well.
Market shift For farmers, the interplay of numbers, especially the ones with dollar signs, also rules planting decisions. Alexander and Hurt noted that after a long climb, soybean futures hit record highs on March 3, while the USDA was still tabulating survey estimates from growers for Prospective Plantings, and the report reflected a desire to cash in on that market.
“It was fairly well understood … that (report) was (farmers’) intentions as of the first half of March,” said Shawn Hackett, president of Hackett Financial Advisors in Boynton Beach, Fla.
After March 3, Alexander pointed out soybean prices tumbled. Added to record highs for corn futures last week – above $6 – she said this might be enough incentive for growers to switch some of those bean acres back to the corn that dominated the 2007 planting season.
“The incentive has just changed,” Hurt added. The question, though, is “how much has it changed?”
Also on March 31, the USDA published its quarterly United States Grain Stocks report, which showed higher-than-expected ending stocks of soybeans and much lower of corn. Hurt said the difference could be because USDA misestimated final harvest numbers last year, or could be due to livestock feeding. Because livestock producers are not required to report inventory, he said the agency has to calculate what grain and meal was fed by first subtracting known quantities (exports, food usage, etc.) from total production.
“We know hog numbers are much higher than what we anticipated last fall,” Hurt said, adding cattle is also up 2 percent and broilers and turkeys, 4-5 percent.
“Right now, we’re in a situation where the market is trying to price corn higher in relation to soybeans to make it more enticing” to growers, Hackett added.
Competing demands Hurt’s message of the night, which he repeated over and over, was corn – more corn is needed, more needs to be planted, more corn may help stabilize soybean prices. Ending stocks, he said, are “way, way down there – much too little corn.”
As for soybeans, he said, “If we add 60 to 70 million bushels, it’s no longer a terribly tight situation,” opining that fewer planted acres than currently expected might be fine.
As noted, demand from the livestock sector may drive planting decisions, but ethanol and export demand are also big factors. If the price of oil holds or continues to climb, Alexander explained the price of ethanol can stay up as well, as can the prices those plants pay farmers for their corn. If oil goes to $120 a barrel, ethanol can price at $2.50-$2.70 a gallon, but if it drops back to $85 a barrel, ethanol will back down to about $1.90, she said.
Hurt noted that last year, ethanol plants in Iowa even paid up to $5.55 per bushel, which he said was their “break-even” cost for being able to pay off a new plant debt in 15 years, depending on their own energy costs (most, he said, operate on natural gas).
Alexander said it’s possible a plant could pay $6-$7 a bushel before having to shut down, if oil stays up.
She noted ethanol plants can bid a higher basis price for nearby-planted corn than competing elevators, as much as 15 cents.
As for falling oil, “When the price of ethanol is $1.50 a gallon, the break-even is about $3.19 per bushel,” she explained.
As for growing demand for corn, soybeans and wheat from foreign nations, higher prices in the U.S. market are not a deterrent.
Alexander explained the weak U.S. dollar means foreign currency is, by comparison, worth more. For example, $12 soybeans here are less than $9 to a Euro spender.
“What we perceive as very high prices, the rest of the world sees as somewhat high, but not as high as to Americans,” she said.
It is possible grain demand could be forced back by federal controls – export duties, a rollback in mandates for biofuel production – or even liquidation of livestock by producers. “We don’t know who would have to cut back” if more corn acres aren’t planted, Alexander admitted, adding the scenarios she and Hurt presented are just that, and not etched in stone.
Their best guess is that in actual planting, corn will gain approximately 3 million acres nationwide over the Prospective Plantings survey.
Hackett noted over the last four years, actual corn planted did increase over each March report by an average of 1.2 million acres.
Alexander and Hurt speculate this land will come out of fewer cotton acres; Conservation Reserve Program acres that have expired or been withdrawn by farmers willing to pay the penalty; and a higher percentage of double-cropped soybeans than last year – Hurt said this was 8 percent of 2007 bean acres and could be as high as 12 percent in 2008.
This farm news was published in the April 9, 2008 issue of the Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee. |
