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Early planting=higher markets?

03/22/2012 @ 7:07am

With U.S. farmers facing ideal weather for an early planting pace, marketwatchers discuss whether this will mean a positive or negative effect on corn and soybean prices.

Though optimal planting dates are weeks off for most, fall-completed fieldwork coupled with the current unusual late-winter/early spring weather have the trade participants keeping one eye on the planters. If field activity heats up, a drop in farmer-selling could tighten pipeline supplies even further.  

How does this early planting talk translate to the cash and futures market? It depends on who you ask.

Supply/Demand Picture

First, it helps to have a little perspective on how the supply/demand picture looks heading into the planting season. 

In the mid-1980s, when the U.S. had 60% of stocks in storage, weather and the planting pace hardly mattered, one CME Group floor trader, requesting anonymity says. 

This year is much different. The U.S. has only 3 to 5 weeks worth of corn and soybean demand on hand. "On top of this, the corn market has traded higher than soybeans for most of the year. Now, late in the marketing year, we find a 20 million ton reduction in South American soybean production," the floor trader says. 

As a result, a battle for acres could ensue, as the market asks for more bean acres in the Northern Hemisphere to meet demand.  

"In fact, U.S. farmers need to find 77 million acres, up 2.0 million from the February USDA Outlook. The concern now is that an early start to corn planting tends to extend the planting window. As a result, acres could increase for corn when we don’t really need that to happen, given the current state of the world supply/demand situation.  So, early planting is friendly new crop (November) soybean prices," the floor trader says.

On Wednesday, the CME Group soybean futures contracts were the only ones trading in positive territory. Wheat and corn markets  struggled to reach higher.

Dan Basse, AgResource Company president, sees an early planting pace having no direct effect on the markets. 

"We have never been able to correlate early-spring planting and cash basis levels for corn and soybeans. We suspect it's because a farmer can now seed at least 10% of his crop in a single day, and that the planting effort never seems to have much of flat price or basis impact, since it occurs over such a short time frame," Basse says

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