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April's Cold Start Raises Corn Acreage Questions

Will as many corn acres end up getting planted as USDA report indicates?

USDA's 2007 Planting Intentions report, issued March 30, indicates 90.5 million acres of corn could be planted in the U.S. this year. That would be 15% more corn nationwide than was planted in 2006. Will farmers end up planting that much corn? That's the big question, as much of the Corn Belt has started the month of April considerably colder and wetter than normal.

The acreage shift to corn projected in the report was bigger than many analysts anticipated. "It was greater than I was anticipating by 3 or 4 million acres," says Bob Wisner, Iowa State University economist.

"The biggest surprise was the shift from cotton and rice to corn in the South. We expected a million and a half acres to shift there. But we're looking at 3.15 million acres of the increase in U.S. corn acreage coming in the Mid-South. Another 1.2 million acres in U.S. spring wheat areas are indicating a switch to corn in 2007."

National average yield also important

The acreage is important. But equally important is the national average yield you would likely get. Many of the extra acres being pulled into corn production this year are on the fringe of the Corn Belt. They're not the most productive acres to grow corn. Also, more corn following corn acres will be planted in 2007.

"When you plant corn following corn, our agronomists tell us we should figure on a yield drag at least in a range of 9% to 12% on those corn on corn acres the first year they're in corn," says Wisner. "So, considering the fringe areas for corn and the corn following corn rotation, what we're looking at is the potential for a yield a little below what we would consider a trend line yield."

Obviously, weather will have the final say on what the national average corn yield ends up being in 2007. That will begin with planting dates, which are becoming increasingly important now as cold and wet weather the first week of April will keep corn planting from getting an early start. Also, some farmers may change their mind about planting more corn and switch some corn acres back to beans as corn prices have declined following release of the USDA report. There seems to be more strength in the soybean market right now.

Some acres may switch back to beans

"Those are important factors and the bean market is trying to buy back some acres," says Wisner. "Look at field conditions in the Midwest now. The last three years corn planting started in central Iowa about mid-April. As it looks now, we'll be hard-pressed to see much planting activity in the first half of April this year. If we start running later than normal, that will tend to push some of the intended corn acres back to soybeans."

Various projections on the possible size of the 2007 US corn crop are being discussed among market analysts. The largest number being floated is possibly 13.5 billion bushels of corn being produced in the U.S. this year. Wisner has crunched some numbers and that's a lot higher than he's coming up with—assuming average growing conditions for 2007.

Studying the 2007 USDA Planting Intentions, he's looked at state-by-state acreage planted, harvested and average yield data for the past three years. Based on a three-year average for yield, he calculates a possible 12.66 billion-bushel U.S. corn crop for 2007. Last year the U.S. produced a 10.5 billion-bushel crop. The largest ever U.S. corn crop was 11.8 billion bushels harvested in 2004.

Expect a lower trend line corn yield

To come up with a 12.66 billion-bushel crop for 2007 Wisner is using 90.5 million planted acres and he's assuming a harvested acreage of 83 million acres.

"I think the weather is becoming the real key here in April in regard to the planted acreage number," says Wisner. "The last three years, we've had anywhere from 25% to 37% of the U.S. corn crop planted by around April 25. Farmers are going to be hard-pressed to do that again this year. If the weather doesn't cooperate with planting, and given the 50 cent or so drop in corn prices that we've seen since the USDA report was issued March 30, some of those intended corn acres may end up going back to soybeans."

To come up with a national average corn yield for 2007, Wisner is using 152.5 bu. per acre in his calculations to project the 12.66 billion-bushel possible crop. "I don't know how solid that yield number will be," he says. "It's weather sensitive, of course. If you go back to the record U.S. corn yield in 2004, 37% of the corn crop was planted by April 26. Early plantings have an influence on yield. Also, a lot of the acres to be brought into corn production this year are in lower yielding areas of the U.S. That means a lower national average yield."

Fringe areas have lower corn yield

For example, looking at the last three years, the average corn yield in the spring wheat areas of the U.S. has been 115 bushels per acre. In the mid-South, for the cotton acres that are shifting over to corn, the average corn yield has been 129 bushels per acre. Those are 3-year averages.

Also, Wisner has visited with ag economists in the South and they say in some cases, the shift from cotton to corn will be made by farmers who haven't grown corn in several years. So there's a re-learning curve among some farmers about how to grow corn, particularly in the South.

"With spring wheat areas in the Dakotas yielding only 115 bushel corn and less than 130 bu. per acre corn in the cotton areas of the South, we can expect a national average yield a little lower than the trendline," he notes. "Also, there's the yield lag to consider on the first-year corn-after-corn acres in the Midwest."

A 152-bushel U.S. yield would be big

So he's figuring a 152.5 bu. per acre national average which would be the second highest ever. The record U.S. crop of 2004 yielded 160.4 bu. per acre. And last year's U.S. crop yielded an average of 149.1 bu. per acre.

Wisner's usage projections for a projected 12.66 billion bushel 2007 corn crop are about 12.6 billion bushel, so that would leave just a small increase in the carryover for the year ahead. He's trimmed livestock feeding and exports of corn back a little from where they've been recently.

With a significant increase in ethanol demand for corn expected to continue, and with livestock feeding and exports not backing off very much, the corn supply/demand balance will remain tight for the next few years anyway.

"Along with those estimates I've projected an average Iowa price of about $3.15 per bushel for corn—assuming all of these numbers - and assuming normal growing conditions in 2007." His expected harvest price would be a little below the $3 mark, at $2.95 per bushel in central Iowa. December futures at harvest would be in the $3.40 area, in this scenario.

The 152.5 bu. per acre national average yield is a little less than trend line. "But it would be a higher yield than last year despite the fact that we're bringing a lot of acres into corn production in areas that are lower yielding," notes Wisner.

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