The excitement and tension are starting to build for the last week in March — and I don't mean for the NCAA Final Four.
On March 30 the USDA will release its first planting intentions report for this year and all producers and agribusiness firms are on pins and needles waiting to see what the report will say. Grim reminder of the movie Trading Places.
Early trade estimates are flying all over the place. There are some estimates that corn acreage will increase from 78.3 million acres to as high as 90 million acres.
Those in Southern states will likely not have any trouble believing that since there is such a huge shift in the Cotton Belt, primarily from cotton, into corn. Acreage change has never been greater.
Where can all the acres come from? As accompanying chart shows, we currently estimate that corn, wheat, soybeans and cotton for this year's total planted acreage will be slightly over 230 million acres — the largest total since 2000 when 232 million acres were planted.
Some will ask how acreage can go up with all the CRP acres and housing developments. The simplest and easiest answer is — double-crop. We are pegging this year's wheat acres at 60 million acres versus last year's 57.3 million. That additional 3 million acres will, for the most part, be either double-cropped or, in some cases, be plowed up and put into corn. Most likely, however, those acres will be double-cropped.
Add in a few acres that have been taken out of CRP as well as some pastureland being plowed up and it doesn't take much imagination to visualize the increase when the profit incentive becomes available.
We are currently estimating this year's corn at 88 million acres, soybeans at 69.5 million acres, and cotton at 12.5 million acres (versus last year's 15.27 million acres). That leaves wheat at 16 million acres.
Our estimate is nothing other than that — an estimate. If the March 30 report comes in with a corn acreage higher than 88 million, which is very possible, the impact might be negative short-term but not for the long-term.
Whether this market gets 88 million or even 91 million acres planted, the yield still has to be 154 bushels an acre or higher in order to satisfy demand.
Last year's yield nationally was 149.1 bushels per acre.
With new acreage coming into production most likely to be more marginal acreage, some will argue that yields should in fact be down this coming year. Possible, but we are betting that genetic technology is improving faster than the yield drop that will occur because of the new acreage.
The bottom line: No matter what the report shows on March 30, the downside selling pressure in the corn market will be light in anticipation of planting and weather issues this spring and summer.
The frost line is lower than normal, suggesting a late planting. New and larger equipment will offset much of that problem, but you cannot make seed grow if the ground is not warm.
Another issue that will most likely be supportive to prices this spring is that with any kind of perceived problems with germination, the impact will be greater than normal because of the lack of corn seed for replanting. Most producers are going to get only one shot at a corn crop this year — and that's all!
A bullish report on March 30 most likely could result in a major top in both corn and soybeans before planting is over. Such a report would likely result, however, in a bull market in cotton. At under 60 cents a pound, the biggest risk is to the upside.
There is something else to expect in the South. The sharp increase in corn acres will result in a lack of transportation equipment and storage space — even for the short term.
Barges will be in extreme short supply. The problems of moving this huge crop from the field to the market will be nearly insurmountable.
The result — a much wider basis at harvest than has normally been anticipated. Hang on to your seatbelt for wild price swings.