Bloomberg News

Soggy Corn Fields Curb Planting as Ethanol, Feed Demand Grow

June 29, 2011

(Adds North Dakota acreage loss in 15th paragraph.)

June 29 (Bloomberg) -- U.S. corn farmers were unable to plant on soggy or flooded fields from Arkansas to North Dakota this year, signaling tighter grain stockpiles even after rising demand for livestock feed and ethanol sent prices surging.

The U.S. Department of Agriculture may cut its planting forecast tomorrow to 90.629 million acres, according to a Bloomberg News survey of 31 analysts. That’s less than the 92.178 million that farmers predicted in a government survey three months ago and would be the USDA’s biggest such reduction from the March forecast since 1995.

Parts of the Ohio River Valley and North Dakota had triple the normal rainfall in the past 90 days, Mississippi River floods were a record in May, and millions of Midwest acres were inundated with water. While prices slumped in the past few weeks as drier weather improved conditions, late planting means fields are more susceptible to heat and frost damage before the harvest in September.

“It’s incredible how wet it has been this year,” said Scott Stirling, who plans to make an insurance claim for the first time in his 21 years of farming because 500 acres of his 7,500-acre farm near Martinton, Illinois, were too soggy to plant. “We needed the best crop ever to begin to rebuild inventories, and that’s just not going to happen.”

Corn futures for July delivery, the closest to expiration, reached a record $7.9975 a bushel on June 10 on the Chicago Board of Trade. The contract has slumped 13 percent since then to settle at $6.98 today.

Biofuel, Feed

The most-active contract by open interest, currently December futures, has jumped 89 percent in the past year. Ethanol producers have used record amounts of grain to make biofuel, and meat prices at all-time highs kept livestock producers from cutting herds.

Higher grain prices mean consumers are paying more for everything from Hormel Foods Corp.’s Jennie-O turkey to Del Monte Foods Co.’s Kibbles ‘n Bits dog food. Global food prices are up 37 percent in the past year, reaching a record in February, according to the United Nations.

Another period of unusual weather, such as a heat wave in July or August or an early freeze, may send corn to $10, said Chad Hart, a grain-market specialist at Iowa State University in Ames.

‘U-Turn’

“This market is primed to head up, and up significantly, if we have a short crop,” Hart said. “Concern about what’s going on in Europe and other places in the world has pulled everything down, but if we start to see some real concerns about how corn production is shaping up, we could see the market do a U-turn in a hurry.”

As many as 500,000 acres in Iowa, Nebraska, South Dakota and Missouri may be hurt by floods on the Missouri River, Hart said. The U.S. is the world’s biggest exporter of corn, soybeans and wheat.

Wet weather that extended into June also may have prevented farmers from seeding more soybeans, an alternative to corn because it has a shorter growing season. About 76.487 million acres may have been sown with the oilseed, down from the previous USDA estimate of 76.609 million, according to the Bloomberg survey.

Spring wheat, grown primarily in the Dakotas, Montana and Minnesota, may have dropped to 13.279 million acres, compared with 14.427 million estimated in March, according to the survey. That would leave total U.S. wheat planting at 56.725 million acres, down from the government’s March estimate of 58.021 million.

Under Water

Terry Borstad, who grows spring wheat, corn, soybeans and other crops on his 6,000-acre farm near Starkweather, North Dakota, said about 1,500 acres will go unplanted this year because some areas remain under water.

“The 75 percent we’ve been able to plant, I feel fortunate,” Borstad said. “A lot of farmers have only been able to get in 50 percent or 25 percent.”

Wet weather may have prevented 6.3 million acres from being planted in North Dakota, the most ever, said Aaron Krauter, the executive director of the state’s USDA Farm Service Agency in Fargo. The previous record was 3.9 million in 1999.

Ethanol Refiners

More of the U.S. corn crop will be used to make fuel in the year that ends Aug. 31 than to feed animals for the first time, the USDA estimates. Ethanol refiners may consume about 40 percent of last year’s harvest.

While U.S. lawmakers are considering an end or limits to tax credits for ethanol after corn and crude-oil prices surged, petroleum refiners are still required to use 15 billion gallons of renewable fuels by 2015.

“That means ethanol production is totally unresponsive to price,” Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana, said in a report this week. “There’s no flexibility.”

U.S. corn inventories as of June 1 may have totaled 3.29 billion bushels, down from 4.31 billion at the same time last year and 6.523 billion estimated at the end of March, according to the Bloomberg survey.

Lower corn inventories signal feed demand isn’t slowing from livestock farmers, said Roy Huckabay, an executive vice president of the Linn Group in Chicago. In April, cattle futures reached a record $1.21625 a pound on the Chicago Mercantile Exchange, and hogs climbed to an all-time high of $1.0435 a pound.

U.S. production of beef, veal, pork and lamb rose 4.9 percent to 3.91 billion pounds in May from a year earlier, the USDA said June 24.

Higher Weights

“We are feeding more animals to a higher slaughter weight, and that means high prices have not slowed feed usage of corn,” Huckabay said. “We are using a lot more corn than people expected, and that means consumption will have to slow the last three months of the marketing year to stretch remaining supplies.”

The number of cattle on feed on June 1 totaled 10.928 million, up 4.1 percent from a year earlier, the USDA said this month. The number of hogs to be sold for slaughter on June 1 was 59.197 million, up 0.6 percent from 58.862 million a year earlier, the agency said on June 24.

Meat companies are passing higher costs to consumers. Austin, Minnesota-based Hormel, the second-largest U.S. turkey producer, has raised prices twice this fiscal year, James Splinter, the vice president at the grocery-products division, said on a June 16 conference call.

‘New Price Points’

“The price increases have been very extensive across the portfolio,” Splinter said. “We are testing some new price points going forward, and we will have to see how consumers react.”

San Francisco-based Del Monte said it raised prices on pet food as much as 5 percent to offset higher raw materials costs, according to a June 17 conference call. “We expect inflation to be a significant headwind, primarily in energy, grains, and raw products,” Chief Financial Officer Larry Bodner said.

Mark Legan, a hog farmer with 2,400 sows in Coatesville, Indiana, said he’s not planning to reduce his herd, even as feed prices rise. Legan said he’s using more distillers dried grains, a byproduct of ethanol plants, in feed rations, cutting his corn and soybean-meal costs by almost 10 percent.

“We’re hoping to be able to stay the course and manage through this, but going forward, the world needs more corn,” Legan said. “Everyone feeding or using corn is concerned about what 2012 will hold, as far as availability of corn. There’s a lot of uncertainty.”

--With assistance from Alan Bjerga in Washington. Editors: Patrick McKiernan, Millie Munshi

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net


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