Acreage Sends Corn Prices Reeling

June-29-07

Acreage planted to corn this year was set at 92.9 million acres an increase of 2.4 million from the March estimate. This was more than two million acres greater than had been anticipated. The increase in the nation’s corn acres from 2006 now stands at 14.6 million acres the largest shift in planted acres since the 1983 “Payment In-Kind” reduction and subsequent expansion in corn acres in 1984. The huge increase in corn acres from last year came from reductions in other crops. Most notably was an 11.4 million acre reduction in soybean acres, and a 4.2 million acre reduction in cotton acres.

In addition to a larger acreage base this year, the USDA also reported that corn stocks at 3.5 billion bushels were about 80 million bushels higher than expected. This likely means that livestock feeding dropped more sharply than anticipated in the March to May quarter.

The USDA will not update their balance sheet until July 12, but old crop ending stocks are now expected to exceed 1.0 billion bushels.
Weather conditions for the corn crop improved over the past two weeks which is the primary reason for about a $1.00 per bushel drop in old crop corn prices. The greatest concern had been in the Eastern Corn Belt states of Illinois, Indiana, and Ohio. The most improvement was in Illinois, western Indiana and Kentucky, with the least improvement in eastern Indiana and Ohio.

The corn crop in the western Corn Belt is in very good condition. The eastern Corn Belt however continues to suffer from dry weather particularly eastern Indiana and Ohio. My estimates of national yield based upon the June 25th Crop Progress report are for 149.8, just ½ bushel under normal yields. With some improvement expected in the Crop Progress report on July 2, this would raise the expected crop to over 12.8 billion bushels. With a few more rains, talk of a 13 billion bushel crop may soon begin.

Weather for the corn crop is still important for the next month. However, much of the corn will be in pollination by mid-July. Given current conditions we will expect cash prices of corn at harvest to be in the $3.00 to $3.20 range per bushel at cash markets. Again at this point, prospects for storage returns look favorable, so plan on corn storage for those amounts that have not been forward contracted for harvest delivery.
Storage returns should be encouraging with prices into winter and spring of 2008 moving toward the $3.50 to $3.70 range.

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Chris Hurt
June-29-07
Purdue University