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Acreage shifts

Agriculture.com Staff 06/02/2006 @ 12:33pm

After the March 31 Acreage report, the market reacted by rallying corn and dropping bean prices. Lower acreage was friendly for corn prices but, ironically, may lead to an increase in corn acres.

The March 31 report estimated corn acreage at 78 million, down from last year but in line with historical acreage figures. We believe the number is creeping closer to 80 million, as farmers are optimistic for a long term upward price move. Contracts for 2007 and 2008 are already offering good value. The market is signaling the need for more corn acres in the future mainly due to a growing demand base.

For soybeans, the March 31 USDA estimate of planted acreage was 76.9 million. After prices slid, the incentive to plant more acres decreased. Most estimates are now somewhere close to 75 or 75.5 million. The general concern with beans is that, while most farmers will admit they have had good crops the past two years, the previous ten years have not indicated much change in yield. On the other hand, corn has been a more consistent increasing yielding crop and probably favored most by farmers.

More corn acres may ultimately support bean prices. The biggest problem beans continue to face, however, is South American production, which remains record large. There is some hope that financial woes in South America could create a shortfall in production in the year ahead. Keep in mind, this is probably more hope than reality. Soybean production in South America has continued to increase on a consistent and dependable basis. Thus, despite economic as well as infrastructure problems the last ten years, Brazil and Argentina have consistently overcome these obstacles.

In the end, at least for 2006, the acreage shifts are probably immaterial. Yield has a more significant impact on production than does acres. What determines yield? Weather. If you can predict weather, you can predict production. The science of predicting weather for more than a short window of three to ten days is marginal.

To compare, a decline of one million corn acres, at a generous 150 bushel yield, equals a reduction of 150 million bushels. The production range since 1988 is 4.5 billion to just under 12 billion. The dominant factor for large or small crops, with a variance of potentially billions of bushels per year, is weather. Bottom line, the impact of weather on yield has probably a ten-fold increase than does an acreage shift of one or two million. Therefore, while corn acreage may be shifted upward from the March report, do not expect it to have a major impact on price.

If you have any questions, contact Top Farmer at 1-800-TOP-FARM, ext. 129.

After the March 31 Acreage report, the market reacted by rallying corn and dropping bean prices. Lower acreage was friendly for corn prices but, ironically, may lead to an increase in corn acres.

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