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Is a seed corn shortage looming?

01/05/2012 @ 12:36pm

As farmers across the U.S. prepare to plant this year's corn crop, they are running up against an unexpected obstacle: a lack of seed.

By some estimates, U.S. supplies of corn seed are down 25% to 50% for this planting season. Output of corn seed, which is grown from specialized plants, was sliced by drought conditions across the Midwest and the Great Plains last year.

(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)

The shortage of seed threatens to scuttle what some expect to be the biggest planting of corn in the U.S., the world's largest producer, since World War II. Early forecasts have been calling for up to 95 million acres to be sown with corn this spring, a 3.4% increase from 2011.

The problem could mean the second straight year of tumult for the corn market. Last year, hot weather led to a smaller U.S. crop than traders had expected, fueling a historic rally in corn prices to a record $8 a bushel in late spring.

Corn prices slumped in the second half as the fall harvest replenished supplies. But in the past three weeks, corn futures prices have been on the rise, jumping 14% in the past three weeks. While much of that has been on the back of fears of lower-than-expected production in South America because of drought, the prospect of falling corn seed could propel prices even further, said Jason Britt, president of Central States Commodities, a Kansas City, Mo., brokerage.

On Wednesday, March corn futures settled unchanged at $6.5850 a bushel at the Chicago Board of Trade. A disappointing crop could renew talk of corn reaching as much as $9 or $10 a bushel, Britt said.

"The implications of having a crop like we had this year would be pretty extreme," Britt said. Traders are "going to have to question if that crop we're planting is starting off on the right foot."

Monsanto Co. (MON) and other large seed companies remain sanguine about supplies.

Pioneer Hi-Bred, the seed subsidiary of DuPont Co. (DD), said farmers in some cases won't get their first choice of seed, but noted that this happens every year. The company doesn't expect major disruptions from tight supplies, said Terry Gardner, Pioneer's director of marketing and sales effectiveness.

"We're in an excellent position as far as having an adequate supply of seed," Gardner said.

Monsanto, the world's largest seed supplier by volume, is expected to provide an update on supplies when it reports quarterly earnings Thursday. A company spokeswoman declined to comment ahead of the report, but pointed to a November investor presentation in which an executive voiced confidence in supplies.

The shortage of corn seed is most acute in the northern Great Plains, an area that is becoming important as farmers try to keep pace with global demand. Already, it is clear farmers in North Dakota won't be able to plant as much corn as they would like, said Tom Lilja, executive director of the North Dakota Corn Growers Association.

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