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Cards stacked for big grain year

Cards stacked for big grain year

Two factors will likely determine how much grain is planted in the Carolinas and Virginia: cotton and good memory. Cotton prices continue to climb and too many farmers remember the disaster of the 2011 grain crop.

Grain prices are excellent, fertilizer prices are high, but stable, and seed supply is good — the table is set for a good grain crop in the upper Southeast in 2011.

Two factors will likely determine how much grain is planted in the Carolinas and Virginia: cotton and good memory. Cotton prices continue to climb and too many farmers remember the disaster of the 2011 grain crop.

Last year North Carolina and Virginia grain yields were decimated by drought in the heart of the growing season and by record breaking heat, especially nighttime heat during critical periods in corn and soybean bloom and grain set.

Grain yields just high enough to negate crop insurance benefits, but too low to be profitable, left many growers wondering whether the high commodity prices for grain will be adequate to depend on these crops to support a large farming operation.

While a few growers will expand or get into cotton production, a majority will likely stick with grain. The outlook for those who grow corn and soybeans, and especially for those growing wheat and soybeans in a double-crop look outstanding for 2011.

Rich Pottorf, chief economist with Doane Agriculture Advisory Service, says, soybean and corn stocks are at or near record lows and demand is pushing prices ever upward. Worldwide, grain production has been negatively affected by the same La Niña weather pattern that devastated Southeast grain production last year.

Weather problems

Winter flooding and a devastating tsunami have virtually eliminated Australia’s hard winter wheat crop and production is down in Argentina and parts of the former Soviet Union.

In the U.S., Pottorf says corn acreage is projected to be up by 3 million acres. Soybeans are projected to add an additional million acres. Wheat acres are already high and could go significantly higher for fall 2011 plantings, depending on how the battle for corn and soybean acres ends up and whether the strong demand for wheat continues.

From California to Virginia, King Cotton is projected to return with power in 2011. Pottorf says his company has pegged production in 2011 at 12.8 million acres. Other forecasters contend acreage may even top 13 million acres.

Even at 80-90 cents a pound, it’s hard to figure a way that any other crop can compete in most of the cotton-producing states, Pottorf says. Demand for cotton clothes is high and there is no reason to believe the current high prices for cotton will go away anytime soon, he adds.

For grain crops, he says, despite the heat and drought-related problems in the Southeast, seed supply for soybeans and corn is good. If wheat acreage continues to climb this fall, there may be some reason for concern, but there is no indication of a shortage of seed in any of these crops, the Minnesota-based economist says.

Prices for seed are going to be higher in 2011 than they were in 2010. “We don’t see any indication seed prices are going to go down as we move closer to planting time. And, while some varieties in great demand may go up some in price, there is no strong indication that seed prices overall will not go much higher between now and planting time” he says

Whether or not any of the new drought tolerant corn seed will be available in the Southeast for the 2011 season is unclear. For sure there will be a limited supply available in the Midwest.

For growers with no irrigation or limited irrigation water, buying drought tolerant seed makes sense, but there are no indications that these or other seed prices will go up significantly between now (early February) and planting time. Growers will have some time to figure out exactly how many acres of which crop to plant and make seed purchases once the planning process is complete, Pottorf adds.

Like seed prices, fertilizer prices have increased significantly since last summer. For spring of 2011 there should be a good supply for farmers. Though he doesn’t forecast fertilizer prices, Pottorf says, from all the information he has seen, prices aren’t likely to go down, at least throughout the spring planting season.

With cotton prices so high, Southeastern growers aren’t likely to plant more corn or soybeans in 2011, so acreage should remain fairly close to last year. Unlike in the Midwest, where more corn will be grown, demand for fertilizer in the Southeast should remain fairly close to 2010 use.

Fertilizer observations

“I don’t see any real advantage of waiting to buy fertilizer, but I don’t see a real price advantage for buying it now. If you can forward price some and not have to store it, then it makes sense to buy now. Or, if you have storage, you might save a little money by buying it now,” Pottorf says.

“There is a lot of volatility in the fertilizer market, and it’s hard to predict prices. Few people, including me, didn’t see coming a 50 percent price increase for some fertilizers between last summer and now,” he adds.

Nationwide, Pottorf says there is little doubt grain acreage will be up. The supply of corn, or more precisely the stocks-to-use ratio for corn, is near a record low. Soybean stocks-to-use ratio is at a record low. Based on these realities, it’s hard to see how prices could go down any time soon.

The monthly data for use of corn for ethanol is likely low. So, the stocks-to-use ratio for corn could go even lower before we ever get to the 2011 corn harvest. “All that means to me that corn prices are going to be strong throughout the summer,” Pottorf says.

Rebuilding stock-to-use ratios is difficult to do. Pottorf explains, “If we get 3 million extra acres of corn, versus last year, and the yield is around 162 bushels per acre, we will barely produce what we need in the U.S. With any type crop failure, the stocks-to-use ratio will be even lower and prices will reflect that heightened demand, the Minnesota-based economist says.

“We could easily be in a situation in which we plant 3 million more acres of corn and a million more acres of soybeans, get good yields in both crops, and lose ground on rebuilding the stocks-to-us ratio margins, he adds.

Southeastern grain growers have some strong cards in their hand going into the 2011 planting season. It will be interesting to see how growers play their cards.

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