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Will corn prices move higher to ration tightening supply?

A lively push-and-pull between soybeans and corn could be developing in the wake of USDA's March 31 Prospective Plantings Report, which pegged lower-than-expected U.S. corn acres and higher-than-expected soybean plantings.

According to the report, corn growers intend to plant 86 million acres in 2008, compared to the average trade estimate of 87.39 million acres. Soybean producers intend to plant 74.8 million acres in 2008, compared to the average trade guess of 71.72 million acres.

A projected yield of 154 bushels per acre would produce a corn crop of about 12.2 billion bushels. Forecast usage of 13.02 billion bushels would leave ending stocks near 636 million bushels and an extremely tight stocks-to-use ratio of 4.9 percent.

If intended acreage holds, soybean production could be well over 3.1 billion bushels or higher at trend yield, which would push carryover over 300 million bushels, compared to less than 150 million bushels last year.

During a press briefing at the Chicago Board of Trade, analyst Terry Roggensack of the Hightower Report noted that the International Grains Council has pegged world corn production at 748 million tons, which is 24.3 million tons below the usage for the current year, “so we're going to draw world stocks down again.

“The world stocks-to-use ratio is already at a record low. If we draw world stocks down another 20 million tons, throw in a lot of rain in the Delta and southern Midwest and slow plantings, those are some bullish numbers for the corn market.”

At the same time, USDA had a lower number for corn stocks in its quarterly grain stocks report. Roggensack says the lower stocks number for corn “suggests better feed usage during the past quarter. That's going to give us a bit tighter beginning stocks number as we look out into the coming year.”

Don Roose, U.S. Commodities, calls the stocks/acreage situation “a double bullish situation for corn, because not only do you not have the acres needed for a bumper crop situation, you also have extremely strong feed usage.”

The report itself could change what producers plant. At the end of the day on March 31, May soybean futures and November soybean futures closed 70 cents lower, while corn futures climbed modestly.

And weather is still a factor for corn planting, notes Roose. “We have some wet weather forecast for the next six to 10 days.”

According to Roggensack, one reason soybean acreage ended higher was the difficulty corn producers had acquiring fertilizer. “Soybeans are easier to plant. With all the problems with the inputs and the high costs for corn, producers just jumped over and planted more beans.”

One positive for soybean bulls is that Argentine producers have resumed their strike over the government imposing a higher export tax on soybeans, “which could cause short-term usage in the United States to be higher than anticipated,” Roggensack said.

Roose believes the corn market will have to move to a rationing process to buy the corn acres and slow consumption. “It's definitely going to be a situation of feed versus fuel. Do we move to levels in ethanol plants, where they move back to 80 percent to 90 percent of capacity?”

“In general, the corn price outlook is positive, $6.20 to $6.25 for December corn,” Roggensack.

Joe Victor, vice president of marketing for Allendale, Inc., said during a press conference at the Minneapolis Grain Exchange that higher intended soybean acreage is the result of Midwest farmers “getting back to their normal rotation,” after shifting the balance toward corn last season. “Our survey indicates that the reason is more agronomic than economic in nature.”

Victor believes that with 86 million acres of corn, ending stocks could plunge a billion bushels from last year to 482 million bushels. “It does imply a stock-to-use ratio of 4 percent, that would be a record level low dating back to 1980.”

According to USDA's quarterly grain stocks report, there are 710 million bushels of wheat in stocks compared to a trade estimate of 666 million bushels. There are 6.86 billion bushels of corn, compared to 7.08 billion in trade estimates; and there are 1.43 billion bushels of soybeans compared to 1.36 billion bushels estimated. All wheat plantings came in at 63.8 million acres, compared to an estimated 63.63 million acres.

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