With demand for U.S. grain and oil seed crops swelling amid record-high domestic and export use levels, market analysts say that at least trendline yields for the 2011 crop are imperative to prevent prices spiking even higher than current levels.
The Prospective Plantings report issued by USDA last Thursday revealed that U.S. farmers intend to plant an additional 4 million corn acres over 2010 levels. Corn growers intend to plant 92.2 million acres of corn in 2011, up 5 percent from last year and 7 percent higher than in 2009. If realized, this will be the second highest planted acreage in the United States since 1944.
But will the additional acres planned for 2011 spring planting produce at the same level as the primary acres? A trendline yield is increasingly hard to realize when adding a significant number of acres, according to Darrell Mark, University of Nebraska Extension livestock marketing analyst. “Overall, 7 million additional acres will be planted to principal crops this year, meaning that marginal acres will be added to those planted. For corn, this means that it will be increasingly hard to obtain a trendline yield of around 163 bushels per acre.”
A large portion of the national increase in 2011 corn acres is expected to occur in the Dakotas. “Over a third of the additional 4 million additional corn acres to be planted in 2011 is in South Dakota and North Dakota,” says Mark. “Growers in these states reported that they planned to plant 850,000 acres and 450,000 acres more, respectively, than in 2010.”
Mark is concerned that deep snow cover in these areas may increase flooding potential or at least delay planting. “At best, late planting results in lower corn yields. At worst, it means the acres aren’t planted to corn, and are switched to soybeans or other crops,” says Mark.
Mark sees potential difficulty in achieving trendline corn yield due to quality of the added acres. “These marginal acres will typically have a lower-than-average yield, especially if they are planted late,” he says. “So, while total bushels of production will increase, the average yield per acre will be more inclined to decrease.”
The additional 4 million acres planned for corn planting revealed in last week’s USDA report doesn’t alleviate the tight supply and demand balance for the 2011/2012 marketing year, says Mark. “In addition, there are all the usual weather concerns that could significantly impact yields, suggesting significant corn price risks yet to come for livestock producers.”
So far, corn users are not backing down from their robust use levels. The USDA Grain Stocks report, also released last week, suggested that little rationing of demand has yet occurred. It all adds up to increased risk of even higher corn prices ahead. “The corn market fundamentals suggest that higher prices are still possible,” says Mark.
The corn market dynamics brought about by last week’s reports make timing of corn purchases a challenge. “At this point, livestock feeders buying corn are somewhat resigned to purchase short-term needs on price breaks,” adds Mark. “Owning call options may also be helpful in establishing a ceiling, but will be expensive.”