Corn futures rallied from Nov. 30 into the January supply and demand report in anticipation of bullish supply news. The news was more bullish than anticipate,d and that added two days of limit-up before prices started a decline. At that time, all bullish supply news was priced into the market. Now, bull markets continually need to be fed.
The "February break" occurred and was done in January. Farmer cash sales picked up and fear of a wheat-induced break pulled corn futures lower the past few weeks in both corn and soybeans. But, looking at the charts, they appeared to be more range bound until the last half of this past week. The need for favorable weather conditions and good production should keep breaks in this commodity from declining sharply.
As of Feb. 15's close, the acreage fight between new crop soybeans and new crop corn appears to have started. The trade has been touting 88 million to 90 million acres, down from 93.4 million acres planted to corn in the 2007 to '08 crop year. I tend to look for a decline of 8 million to 9 million acres.
North Dakota, South Dakota and Minnesota are losing corn acres to wheat and soybeans most likely will win the rest of the battle. In Iowa, farmers are wishing to get back to a more normal 50-50 rotation. That, along with fertilizer prices at $780 a ton and higher prices for seed, is pushing farmers toward these decisions.
Cotton acres in the Delta went into soft red winter wheat and will be double cropped with soybeans. The state of Illinois will not switch many acres as Illinois has seen corn yields improve 2.6 bushels per acre on average since 1990, while soybean yields improved only 1.2 bushels per acre. At 89 million acres, the national trendline yield would be 158 bushels per acre. Carry-outs most likely will not grow this year. Last year, the Energy Independence and Security Act mandated corn based ethanol usage for 2008 to be 9 billion gallons.
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There currently are 131 ethanol plants operating in the United States with a production of 7 billion gallons and another 72 plants under construction along with 10 expansions that by mid-2009 should produce another 6.4 billion gallons. Nearly one-quarter of the U.S. corn production this year is expected to go for ethanol. This growing demand at a time when acres are potentially into a sizable decline and stocks forecast at present at 1.435 million bushels. Stocks for this coming season are expected to be at bare minimum pipeline supplies. Together, the U.S. and China account for 62 percent of the world's production of corn, while also accounting for 69 percent of the world's stocks in corn. USDA has forecast that by 2014, the U.S. will hold world market share of 72 percent for corn. Currently, the U.S. is estimated to be at 65 percent. When such a sizable amount of one commodity so needed by the world is in few hands, weather becomes very critical. Forecasters are predicting a drought this summer. Will it be a drought with heat or cool temperatures? Big difference to price discovery.
In the latest USDA report, the government lowered Argentina's corn production by 1 million metric tons and increased South Africa's production by 1 million metric tons. This appears at first glance to be a push, but that's not so, as South Africa is a distant number in the export status and Argentina is the No. 2 exporter of corn in the world behind the U.S. It's likely South Africa's corn exports won't leave the continent as there is major drought in Zimbawbe. The U.S. never has experienced an acreage allocation problem as serious as is indicated for 2008. Biofuel and ethanol mandates along with USDA failing to release acreage from the CRP is making it so.
