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Acreage Anticipation- Part II

Recall that last month (February 22), a Dow Jones news article stated that, “U.S. 2008-09 corn planted area is estimated at 90 million acres and production is seen at 12.81 billion bushels, according to the U.S. Department of Agriculture, which released its grains and oilseeds outlook Friday at its annual Agricultural Outlook Forum.”

The article noted that, “In 2007-08, corn planted acreage was 93.6 million acres, with harvested area at 86.5 million, according to the USDA’s February supply and demand report.”

With respect to soybeans, the Dow Jones article stated that U.S. producers would plant 71 million acres of the oilseed in 08-09. “In 2007-08, soy planted acreage was 63.6 million acres, with harvested area at 62.8 million, according to the USDA’s February supply and demand report,” the article said.

And regarding wheat acreage, USDA estimates that 64 million acres will be planted in 2008. This is an increase from last year, when U.S. farmers planted 60.4 million acres of wheat, the article noted.

On Thursday, February 21, USDA Chief Economist Joe Glauber provided a broad overview of the U.S. agricultural economy and discussed anticipated acreage levels for the 2008-growing season (transcript available here).

In part, Dr. Glauber noted that, “Cropland area is expected to expand in 2008 with higher expected net returns for the major field crops. Combined planted area for the 8 major field crops (corn, sorghum, barley, oats, wheat, rice, upland cotton, and soybeans) is expected to reach 252.3 million acres, up 6.8 million acres from 2007 (figure 1). Higher area is supported by strong incentives to expand overall planting including double crop soybeans with an additional 1.6 million acres of soft red winter wheat sowed last fall. Also available for planting is 2 million acres of Conservation Reserve Program (CRP) land from contracts not renewed last October.

“Leading the expected expansion in area is higher wheat seedings and a substantial rebound in soybean area (figure 2). Wheat farm prices are projected at record levels again in 2008/09 even as high prices last fall encourage expansion in fall seedings and record prices for durum and spring wheat are expected to boost area for these crops in the Northern Plains. Farm prices for soybeans are projected at a record again for the coming year boosting net returns sharply higher compared to last year at this time. Corn acreage is expected to decline in 2008 reflecting stronger competition from soybeans this year; however, corn plantings will remain well above those in recent years as expected returns are up substantially from last year at this time even with higher fertilizer costs. Upland cotton and rice also are expected to lose area in 2008 as year-to-year gains in net returns fall short compared to the other crops.”

For a more detailed narrative breakdown of the planted acreage estimates, which includes excerpts from Dr. Glauber’s presentation on February 21, as well as analysis from University of Illinois Agricultural Economist Darrel Good from February 22, see this brief FarmPolicy.com podcast from February 22 (MP3). The audio recap (MP3) only lasts about five minutes.

And with respect to Dr. Glauber’s remarks from last month regarding corn profitability (“expected returns are up substantially from last year at this time even with higher fertilizer costs”), note that a recent analysis by University of Illinois Agricultural Economists Gary Schnitkey and Darrel Good (“Corn Versus Soybean Returns in 2008”), stated that, “How many acres of corn and soybeans will be planted this year is of great interest and could impact relative corn and soybean prices. Most projections indicate fewer corn acres and more soybean acres will be planted in 2008 as compared to 2007.

“Relative profitability of corn and soybeans may impact acreage decisions. Given current cash bids for fall delivery, our analysis suggests that corn will be more profitable than soybeans in 2008 on many farms in Illinois…”

The Associated Press reported on Friday that, “Wheat for May delivery dropped 24 cents to $9.90 a bushel; May corn rose 5.5 cents to $5.61 a bushel; May soybeans dropped 57.25 cents to $12.70 a bushel.”

As projections for an increased number of total planted acres in the U.S. increase for the 2008 growing season, Sue Kirchhoff and Jeff Martin reported last week at the USA Today Online that, “The USA’s open plains and prairies are threatened by soaring grain prices that have increased their value as cropland. Grain prices have been driven up by a seemingly insatiable worldwide appetite for food and by federal energy policies promoting corn-based ethanol that are working at cross purposes with government programs designed to conserve open spaces.

“As a result, landowners in South Dakota and across the USA’s Farm Belt are converting to cropland marginally productive acres that for decades — in some cases, centuries — have remained uncultivated because farming them wouldn’t have been profitable or because of their environmental value.”

The article stated that, “Conservationists warn that the current commodity and ethanol frenzy could undo years of hard work and undercut the investment of taxpayer money that has bankrolled federal land- and water-protection programs.

“‘A generation of conservation accomplishments could be rolled back’ if commodity prices remain near historic highs, warns Ken Cook, head of the non-profit Environmental Working Group.”

Meanwhile, Lauren Etter reported in yesterday’s Wall Street Journal that, “Investors from Wall Street to the Great Plains will be watching Monday morning when the U.S. Department of Agriculture releases its annual report on how much farmers will be planting of which grains. The report holds big implications for livestock farmers, ethanol plants, food companies and consumers.

“The USDA report gives the planting season’s first official peek at how much corn, wheat, soybeans and other grains farmers intend to plant. Traders make investment decisions based on the expected number of planted acres, while farmers use the report to decide which crops might maximize their profits.”

Ms. Etter explained that, “But with stocks of corn and other staple grains lower than they have been in decades, grain markets are anything but stable. Agriculture exports are expected to rise to a record this year as China, India and other foreign nations clamor for grains to eat and to feed livestock. As corn-fueled ethanol production keeps growing, corn used for ethanol will make up more than 30% of the corn crop by next year, up from 14% in 2006. Packaged-food companies are hoping not to have to push further price increases for bread and other staples onto consumers.”

David Gaffen, in an update posted on Friday at the MarketBeat Blog (The Wall Street Journal) stated that, “A Dow Jones Newswires survey of analysts suggests the prospective plantings report will show a 12% increase in soy area to 71.5 million acres and a 5.3% increase in wheat area to 63.6 million acres. But the survey indicates corn planted area will drop 6.7% to 87.3 million acres.

“That might put more pressure on corn prices, which have already been boosted by food and ethanol demand, pinching food processing and manufacturing companies, and contributing to rising food inflation for consumers. As of February, food inflation was up 4.6% on an unadjusted basis from a year earlier, contributing to the recent declines in spending by consumers.”

Angie Pointer, writing recently at Barron’s Online about the USDA’s Prospective Plantings report, noted that, “But a word of caution before declaring the winner of the 2008 U.S. grain grand prix: While Monday’s report will signal what farmers plan to cultivate, analysts warn that weather over the next few months will determine which crop-planting intentions are actually carried out.”

And Joshua Boak reported in today’s Chicago Tribune that, “With crops at near-record prices and grocery bills rising, the agricultural industry is awaiting the Monday report with bated breath because it will give the best initial glimpse of the nation’s food supplies, and thus represents an early sign of where commodity prices might go.”

Mr. Boak explained that, “The Agriculture Department’s planting survey asks 84,000 producers their intentions, using mail questionnaires, phone follow-ups and personal interviews during the course of two weeks. State field offices then examine the data for about five days, checking for any outliers that might skew results. The Agriculture Department then reviews the survey for another five days before assembling a final draft in lock-up during the wee hours of the morning. It gets released at 7:30 p.m. CDT Monday.”

The Tribune article indicated that, “The private consensus among analysts is that 88 million acres of corn will be planted this year, down from 93.6 million last year. Soybeans should rebound to 72 million acres after falling below 67 million acres. And it is possible that the total acreage farmed could increase.

“Last year, more corn occupied land previously used for soybeans because biorefineries needed it to produce ethanol, the federally mandated additive for motor fuel. On Friday at the Chicago Board of Trade, corn futures priced at $2 a bushel a couple of years earlier commanded $5.60.

“High commodity prices are the result of multiple trends. The demand for corn also is spurred by the emerging middle class in China and India splurging on protein-heavy diets, and cattle feed on grain.”

“Analysts note that the March survey serves as a baseline for a more exact plantings report released in June, once the crops are actually in the soil. And outside of the markets, the numbers will be further dissected as meteorologists chart weather conditions,” the article said.

***

In a larger context regarding world supply and demand for a variety of commodities, Bloomberg writers Jiang Jianguo and Feiwen Rong reported on Friday that, “Chinese Premier Wen Jiabao announced more money for farmers and raised government prices for purchases of wheat and rice to boost rural production after inflation accelerated to an 11-year high.

“The government pledged an additional 25.3 billion yuan ($3.6 billion) of subsidies to boost government spending on agriculture to 587.8 billion yuan this year, or 36 percent more than last year, Wen said at a national conference yesterday, according to a statement on the government Web site. It raised purchase prices for wheat and rice by as much as 10 percent.

“Inflation in the world’s fastest-growing major economy soared to 8.7 percent in February when surging food prices were exacerbated by the worst snowstorms in half a century. Pork, a staple food, almost doubled in price in the past year while soybean oil jumped 64 percent, increasing risks to social stability, Jim Rogers, investor and author of ‘Hot Commodities’, said today.

“‘Food prices all over the world are going through the roof and so spread the risk of social unrest,’ Rogers said by phone in Singapore. ‘It doesn’t matter where, everybody has to pay higher prices for food and that’s causing a problem.’”

Keith Bradsher reported in yesterday’s New York Times that, “Rising prices and a growing fear of scarcity have prompted some of the world’s largest rice producers to announce drastic limits on the amount of rice they export.

“The price of rice, a staple in the diets of nearly half the world’s population, has almost doubled on international markets in the last three months. That has pinched the budgets of millions of poor Asians and raised fears of civil unrest.”

The Associated Press reported on Friday that, “Vietnam will cut rice exports by 1 million tons this year as part of the government’s efforts to rein in soaring inflation and ensure food security, the government said Friday.

“‘To stabilize food prices, rice exports this year must not exceed 3.5 million tons,’ Prime Minister Nguyen Tan Dung was quoted as telling a government meeting Thursday.”

Reuters writer Augustine Anthony reported yesterday that, “Pakistan is raising the price it pays to farmers for wheat by nearly 23 percent, Prime Minister Yousaf Raza Gilani said on Saturday, after failing to tempt producers to sell the grain for strategic stocks.

“The government plans to build a 5-million-tonne strategic reserve from the 2007/08 crop, but farmers had rejected the procurement price of 510 rupees ($7.9) per 40 kg as below domestic and international market levels.”

And in the U.S., Philip Brasher reported in today’s Des Moines Register that, “The high prices for milk, grain and other commodities are hitting home at places like the Johnson County Crisis Center food bank in Iowa City.

“More people are struggling to buy food, even with food stamps. But at the same time, donors have cut back on contributions.”

Mr. Brasher explained that, “The cost of feeding a family of four on a low-income budget has jumped nearly 6 percent since February 2007, according to the U.S. Agriculture Department.

“Anti-hunger advocates say the increase in food prices makes it all the more important for Congress to agree on a new farm bill soon and to include increases in nutrition spending, both to raise food stamp benefits and to provide more commodities to food pantries and soup kitchens.”

Keith Good