Planting delay realities
We've been hinting for some time that planting delays will become more of an issue for producers in 2009, and that is finally starting to get the trade's attention. While its still early for corn (2% planted vs. 6% normal), for northern Plains producers we are showing a bigger lagging from normal planting pace (barley at 3% planted vs. 13% normal; HRS 2% planted vs. 11% normal). These numbers won't see a lot of progress this week either, and are likely to fall back even further behind the average pace for the next 2 weeks (at least).
Of course, this can change with the right weather. But so far, the weather has not been right for drying and warming up soil. Instead, the cold/wet forecasts continue to suggest further planting delays, with most ground not likely to be planted until May. That leaves a very short season for producers to get their work done.
It doesn't take long to start cutting corn carryout significantly from the 1.7 billion currently estimated with a late corn planting scenario. First, we could lose 1-2 million acres, which means a roughly 150-300 million bushel loss in potential carryout. We also could lose 3-5 bushels of yield potential, which represents another loss of 250-400 mb of carryout. That's a total loss of production of 400-700 mb, and now we have carryout closer to 800 mb to 1 billion bushels (or a pretty tight corn carryout!).
This loss in production might be even more meaningful if demand bounces back to 2007 levels. That would mean exports expand 700 mb from current levels, and feed demand expands about 600 mb. It doesn't take long to come up with negative carryout with both supply cuts (due to late/prevented planting) and demand expansion back to 2007 levels. In essence, we cannot have a return of 2007 demand as we simply would not have the supply to feed it. If demand recovered, prices would have to start rationing demand such that it could not get to 2007 levels again.
This is what will keep markets on edge over the next few weeks, especially if demand continues to expand. Economists state it takes 4-8 months to see the impact of significant changes in prices and their effect on demand. Well, since our peak last summer it has already been 10 months, and from lows made last November it already has been 5 months. Demand will start to improve, and already we are seeing it on the export side of the equation. If world recessions end and inflation becomes the new norm, it could be surprising how quickly demand can respond to these important changes in the US economy. Domestically, these numbers get even better as feed and ethanol use are the two biggest uses by far of US corn.
While markets recently (especially stocks) have shown a manic-depressive type behavior (from good to bad in short periods of time), the grain markets can also have the same tendency. It could be an interesting year as we try to decipher what 2009 will actually be like. The keys to the equation are always focused on the supply side during the growing season with demand assumed to be constant. But as we move through 2009/10 marketing year, we may have more changes to deal with than we want to - and right now those supplies seem to be shrinking rather than expanding.