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Soybeans could trump corn in spring planting

By ANN HINCH
Assistant Editor

WASHINGTON, D.C. — Though the USDA reduced its estimates for U.S. corn and soybean production by small percentages in its Sept. 12 Crop Production report, some market analysts wonder if it was enough – and expect further reduced estimates in October.

The reason for the drop in projection from almost 12.3 billion bushels of corn in USDA’s August report, to just over 12.07 billion bushels last week, is reduced anticipated yield. In August, the USDA forecast a nationwide average of 155 bushels per acre, but scaled back to 152.3 for September (which, if realized, would still be higher than the 151.1 yield of last year – and the second highest production on record).

The USDA blames this on lack of rainfall across most corn producing states between the Aug. 1 and Sept. 1 survey dates. “The fact that we did see these reductions in the September report … portends further reductions down the road, as the USDA gets a better handle (on growing conditions),” said David Hightower, principal and founder of The Hightower Report of Chicago.

He likened this year’s September report to a normal year’s August report because of the planting and maturation delays brought on by massive flooding through the Midwest in June.

He and fellow analyst Greg Wagner, of AgResource Co., also questioned how fully pods at the tops of soybean plants were able to fill out because of dry August weather. The USDA’s slightly lowered estimates for U.S. soybean production from 2.97 billion bushels in August to 2.93 billion this month (yield forecast down from 40.5 to 40 bushels per acre – both still below last year’s) may mirror this doubt.

“We could probably see the bean yield come down again in the (October) report,” Hightower said.

Ending U.S. stocks of both crops are also projected down from the USDA’s August World Agricultural Supply and Demand Estimates report. Corn fell from 1.13 billion bushels to almost 1.02 billion on the USDA’s lowered yield estimates; soybean estimates stayed the same at 135 million bushels, thanks to slightly higher beginning stocks in September than in August.

“We’re going to be back in a situation of pipeline supply,” Wagner said, “likely to be aggravated by the delay in the harvest.”
Another factor Hightower cited for reduced stocks is livestock usage, which he believes is still higher than the USDA projects, despite projections earlier this year about producers trimming animal stock. In the last eight months, he said the industry has seen several instances of threatened liquidation of pork inventory – and not only did that not happen, but feeder pigs were even brought in from Canada, as producers were given reason to hope at various points that this year’s grain production would be healthy.

Wagner added there has not been an overall reduction in sows as anticipated, nor is the U.S. cattle herd contracting as quickly as people may have thought. There is also still a strong global demand for meat.

He explained part of U.S. livestock producers’ hope might also be that world wheat production is estimated at an all-time high of 676.3 million tons, allowing them to substitute less expensive wheat for corn and soybeans as feedstock. “A lot of it is just not milling quality,” Wagner said.

For next spring, Hightower said American farmers may increase their soybean acres instead of corn, despite the fact that as many as 5 million more acres of corn over this year’s planting could be needed just to meet demand.

Right now, he explained there are more incentives to plant soybeans: higher market prices, projected low production in South America and lower input costs than corn.

“I think (growers) are going to be quite deterred” from corn, Hightower speculated, perhaps on fertilizer costs – as well as terms of its sale – alone. Fertilizer prices have not come down despite the cost of natural gas (which he said is 70 percent of fertilizer) doing so, he said.

“Fertilizer is one of the least profitable enterprises for natural gas,” Wagner said, adding this might explain why prices haven’t come down – manufacturers may be trying to recoup earlier losses. He believes corn will have to command higher prices to induce farmers to keep their planting levels high in 2009.

In the Farm World coverage area, corn yield projections held steady for Illinois, but dipped slightly for Indiana, Iowa, Kentucky and Tennessee. The drop was a bit steeper for Michigan and Ohio, from 148 to 140 bushels per acre and from 160 to 152, respectively.
Soybean yield expectations in Illinois, Iowa and Tennessee held steady from August to September, while they dipped slightly for the other four states.

9/17/2008