Corn futures in Chicago soared the daily 30-cent limit and soybean prices also rallied sharply after government data exacerbated concern over dwindling U.S. grain stockpiles.
The nation’s corn and soybean supplies at the beginning of March fell to unexpectedly low levels, based on a U.S. Department of Agriculture report released earlier March 31. In a separate report, the USDA said it expects American farmers to reduce soybean plantings this spring, though corn acreage will rise to the second-highest total since the end of World War II.
With the spring planting season just beginning and harvest six months away, today’s reports only fueled anxiety over tight corn and soybean supplies, traders and analysts said. Demand from ethanol makers, livestock feeders and exporters remains strong, leaving little margin for error during the upcoming growing season.
Supplies are “razor-thin,” said Matthew Connelly, a corn options broker on the CME Group trading floor in Chicago. “If we go from a wet, cool spring to a hot, dry summer, that’s not good. That will get things going” in the grain markets.
If Midwest weather turns unfavorable, “we could be talking about $10 corn and $20 soybeans,” Connelly said.
In trading March 31, corn futures contracts for delivery from May through July 2012 all rose 30 cents, the maximum daily move allowed by CME. May futures settled at $6.93 ¼ a bushel and December ended at $6.25 ¼. Corn futures reached a 32-month high of $7.35 on March 4.
May soybean futures rose 38 ¼ cents to $14.10 ¼ a bushel, while November futures rose 31 ½ cents to $13.95.
Farmers favoring corn over soybeans
Corn prices were the top-performer among major U.S. grains last year - rising 52 percent, based on CME futures - and the market continued to soar in 2011. High prices have boosted expected returns from planting corn compared with other crops, encouraging more acreage, the USDA said in its annual Prospective Plantings report March 31.
Farmers will plant an estimated 92.18 million acres to corn, up 4.5 percent from 88.19 million in 2010, the USDA said. The projected acreage for 2011 would trail only 2007 plantings of 93.5 million acres as the highest total since 1944.
Analysts on average expected corn plantings at about 91.8 million acres, based on a Dow Jones Newswires survey.
Much of the increase in corn will come at the expense of soybeans. Iowa, Kansas, Mississippi, Nebraska and Ohio are among states where farmers are expected to plant more ground to corn and less to soybeans. In North and South Dakota, corn acres are projected to surge 22 percent and 19 percent, respectively, according to the USDA.
Click here for the USDA’s Prospective Plantings report.
Nationwide soybean plantings are estimated at 76.61 million acres, down 1 percent from 77.4 million last year but still the third-highest acreage on record, according to the USDA. Based on the Dow Jones survey, soybean plantings were estimated at 76.9 million acres.
Spring, summer weather focus of market attention
While big corn acreage could lead to a record crop this fall, shorter-term supply concerns remain a primary focus for traders and analysts. By the end of the 2010-11 marketing year Aug. 31, U.S. corn stocks are expected to reach the lowest level in 15 years.
Jack Scoville, an analyst with Price Futures Group in Chicago, said lower-than-expected stocks figures for corn and soybeans will keep markets “more attuned to weather developments” this spring and summer.
“We’re going to need really good weather, even with all these acres being planted to corn,” Scoville said during a March 31 press briefing at CME following the release of the USDA reports.
Recent corn purchases by exporters as well as livestock feeders has stayed firm even at high prices, Scoville said. Livestock buyers “weren’t too thrilled with $7 (corn), but they paid it,” he said. “They seem to be able to make those numbers work.”
In its Quarterly Stocks report, the USDA said U.S. corn supplies as of March 1 totaled 6.52 billion bushels, down 15 percent from the same date a year earlier. Soybean stocks totaled 1.25 billion bushels, down 1.6 percent.
March 1 corn and soybean supplies were about 180 million bushels and 46 million bushels, respectively, below analysts’ expectations.
Click here for the Quarterly Stocks report.
Feed costs rising with $7 back in sight
The USDA reports signal higher costs for livestock feeders, with many analysts expecting corn futures to climb back above $7 a bushel in coming weeks after tumbling near $6 earlier this month. With expensive feed discouraging herd expansion, cattle and hog prices may rise further.
“Look for livestock markets to advance on prospects for tighter and higher feed supplies, prompting lower weights and more cautious expansion attitude by livestock growers,” Richard Feltes, an analyst with R.J. O’Brien & Associates, said in a March 31 report. “Today’s report sets stage for highly sensitive, weather-driven markets this summer.”
In late-morning trading, April live cattle futures traded on CME fell 0.175 cent to $1.20375 a pound, after touching a record $1.2165. April lean hog futures fell 0.1 cent to 93.45 cents a pound.
Lower soybean acreage may also push soybean meal prices higher, further raising feed costs for livestock producers.
But some analysts noted that soybean acres could still increase above the USDA’s projection. If a wet spring delays planting, farmers may shift more ground to soybeans, which have a shorter growing season than corn.
The USDA’s soybean plantings estimate, at 76.61 million acres, may be revised higher “if the weather is indeed cold-wet through the month of April,” Mike Zuzolo, president of Global Commodity Analytics & Consulting, said in a March 31 report. He also sees the projected corn plantings “as the biggest number we’ll get this spring if the weather doesn’t cooperate.