2007 corn acreage problem solved?
Last week we asked the question, "Did we slow corn use enough, and attract enough new acres of planted corn in 2007 with high winter corn prices?"
The USDA report provided the first big clue about how the 2007 corn problem (a 15 million acre problem) could be solved. Not only was the intended acreage 2 million higher than expected (at 12 million over last year), but the feed demand was sharply reduced from expectations. While the estimated feed use was 70 mb smaller than traders expectations, estimates for a 100-110 mb reduction in feed use last quarter may mean feed use could be down from 500-700 mb over the next 7 quarters. That's the equivalent of 3-5 million acres of production- an even bigger shock than the acreage number to the market. Another surprise was an extra 4 million acres of planted acreage in 2007 (that was not planted in 2006)-even more cushion than we expected.
Given a 12 million acre hike in 2007 and a reduction in demand of 3-5 million acres (potentially), this was a potential solution to our 15 million acre corn problem -a seemingly insurmountable problem just a few months ago. This astounding change in the market outlook caused significant liquidation in corn futures-and a more negative outlook for grains going forward into spring work.
Pro Ag figured the report could pressure corn futures 15-25c, should have provided support to soybeans of 30-50c, and was basically neutral wheat. But prices (as they typically do) sold off much harder than that, reflecting the more negative psychological outlook on grains (if we can solve a 15 million acre corn problem in just 6 months, it doesn't appear there is anything the market can't do).
We mentioned last week the potential for a negative report, but this one was even more negative than we expected. Now, we see some estimates of corn carryout in 2007 not only at positive levels (which the market could barely anticipate), but also most projections are now looking at from 1-1.6 billion bu in carryout with a 'trend' yield. All of a sudden, it may be possible to even have some acreage switching from corn to soybeans (up to 2 million acres) without too big a hiccup in prices.
However, we still haven't produced this crop, and assuming a 'trend' yield almost always assumes away the most interesting aspect of a year's production "What will weather offer us for yield?" We still don't know the answer to that, and may not for some time. Already some are proclaiming this to be a late planting year, but it's still early April so its difficult to make that assumption, too. The recent cold, arctic weather blast into the Corn Belt this week stroked those worries, with some big price rises in corn today. But that might only be a temporary occurance as weather does change often in April. There are some very wet states (IA, ILL, IND, OH) that may have difficulty if cool/wet weather lasts, but it might be too early to make that call in early April.