April 5, 2006

AG-ECO NEWS

Vol. 22, Issue 09, April 05, 2006

Jose G. Peña
Extension Economist-Management

U.S. Planting Intentions
Corn and Wheat Down; Soybeans and Cotton Up
Large Carry-Over Stocks Holding Back A Significant Market Improvement

While futures price bids for corn and wheat improved, the market for cotton and soybeans weakened as initial planting intentions indicate decreased corn and wheat and increased While futures price bids for corn and wheat improved, the market for cotton and soybeans weakened as initial planting intentions indicate decreased corn and wheat and increased cotton and soybean plantings. USDA’s initial planting intentions report, released on March 31, 2006, indicates that farmers intend to plant 4.6 percent less corn than last year, 6.6 percent more soybeans, 3.1 percent more cotton and 0.2 percent less wheat. (See figure 1 and table 1). After dropping to about $2.54/bu, future price bids for December ‘06 corn delivery contracts recovered to the late February-early-March ‘06 price range of around $2.65/bu.

Most Ag commodities are trading significantly lower than the 7-8 year highs of two years ago. Markets weakened shortly after USDA’s September 12, 2005 forecast of the 2005/06 corn, cotton and soybean crops as the second largest on record. Cotton production was subsequently adjusted to the largest crop on record.

While the lingering drought and reduced corn and wheat planting would appear to support a more bullish market, large carry-over stocks from this past season’s record production may be holding major market rallies in-check.

Overall, the planting intentions report appears positive for corn, wheat and cotton prices, in relation to the recent weakness.

04-05-06_Fig1_02
TABLE 1. ACRES PLANTED TO SELECTED CROPS
COMMODITY 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 % CHNG 2005/06
(X 1000 ACRES)
CORN 71,479 79,229 79,537 80,165 77,386 79,551 75,752 78,894 78,603 80,929 81,759 78,019 -4.6%
SOYBEANS 62,495 64,205 70,850 72,025 73,780 74,871 74,075 73,758 73,404 75,208 72,142 76,895 6.6%
ALL WHEAT 69,031 75,105 70,412 65,821 62,714 62,629 59,597 60,318 62,141 59,674 57,229 57,128 -0.2%
Winter 48,591 51,445 47,985 46,449 43,331 43,393 41,078 41,766 45,384 43,350 40,433 41,404 2.4%
Durum 3,436 3,630 3,310 3,805 4,035 3,937 2,910 2,913 2,915 2,561 2,760 1,825 -33.9%
Other Spring 17,004 20,030 19,117 15,567 15,348 15,299 15,609 15,639 13,842 13,763 14,036 13,899 -1.0%
ALL COTTON 16,931 14,652 13,898 13,418 14,874 15,517 15,769 13,958 13,480 13,659 14,195 14,634 3.1%
UPLAND 13,088 14,376 13,566 13,088 14,584 15,347 15,499 13,714 13,301 13,409 13,925 14,300 2.7%
PIMA 330 258 252 330 290 170 270 244 179 250 270 334 23.5%
SORGHUM 9,429 13,097 10,052 9,626 9,288 9,195 10,252 9,589 9,420 7,486 6,454 6,483 0.4%
PEANUTS 1,538 1,402 1,434 1,521 1,535 1,537 1,541 1,353 1,344 1,430 1,657 1,391 -16.1%
OATS 6,225 4,638 5,068 4,892 4,673 4,477 4,403 4,995 4,597 4,085 4,246 4,324 1.8%
HAY 59,764 61,169 61,084 60,076 63,220 59,854 63,521 63,942 63,383 61,966 61,649 61,478 -0.3%
TOTAL 296,892 313,497 312,335 307,544 307,470 307,631 304,910 306,807 306,372 304,437 299,331 300,352 -1.6%
1/Intended plantings on March 31, 2006 as indicated by reports from farmers.2/Source: USDA-NASS

Corn/Sorghum

USDA’s initial planting intentions report indicated that corn growers intend to plant 78.019 million acres of corn, down 3.74 million acres (down 4.6%) from 81.759 million acres planted last year and down 0.7 percent from 78.603 million acres planted 2003 when national farm prices averaged $2.42/bu. If realized, this will be the lowest corn acreage since 2001, when 75.7 million acres were planted.

While it appears doubtful that national average corn yields will approximate the 2004/05 season’s record high of 160.4 bu/acre, using last season’s national average yields of 147.9 bu/acre and the historical harvest-to-planted ratio, about 10.4 billion bushels of corn could be produced. Using the 2006 Agricultural Outlook Forum’s February 2006 projected estimate of new crop corn use at 11.495 billion bushels, use will exceed the production estimate and ending stocks should drop to a manageable 1.3 billion bushels, down 45 percent from this season’s ending stocks of 2.35 billion bushels. (See Table 2).

In terms of the market, it appears that an increase in grain stocks may be moderating a significant market improvement for the old crop. According to USDA-NASS, March 31, 2006, Grain Stocks report, corn stocks in all positions as of March 1, 2006 totaled 6.99 billion bushels, up 3.4 percent from 6.756 billion bushels on March 1, 2005.

Sorghum farmers indicated that they intend to plant 6.48 million acres of sorghum, up just slightly from 6.454 million acres planted last year, but down 13.4 percent from 7.486 million acres planted in 2004.

Related to corn and sorghum markets, soybean growers intend to plant an estimated 76.895 million acres, up 6.6 percent from last year’s plantings of 72.142 million acres. If realized, this will be the largest soybean plantings on record.

It appears that while corn plantings are down, relatively large corn carry-over stocks into the new season and a potential for increased soybean production from the intended record planting may keep a lid on a major corn market rally.

Cotton

All cotton plantings for 2006 are expected to total 14.634 million acres (14.3 million upland; 334,000 Pima), up 3.1 percent from 14.195 million acres planted last year but down 7.1 percent from 13.655 million acres planted in 2004. Upland acreage is expected to total 14.3 million acres, up 2.7 percent from 2005. Farmers in Texas indicated an intent to plant 6.0 million acres to upland cotton, up 1.7 percent from 5.9 million acres planted last year.

According to Dr. Carl Anderson, Professor and Extension Specialist-Emeritus, given U.S. plantings of 14.6 million acres and total offtake around 22.7 million bales, production of 22.4 million bales will about cover use and may lower carryover stocks slightly. (See table 2). If so, there would be enough cotton to meet record exports and hold December ’06 futures in a range of 58 to 64 cents. A December ’06 price of 62 cents is still a good place to fix a price floor for the new cotton crop.

Dr. Anderson contends that producers should carefully consider using December put options to place a floor on a price in the vicinity of 62 cents or higher. Option spreads can be used when appropriate. When December futures are depressed, then a bull call spread could be used by buying 60 to 62 cent calls and selling 68 to 70 cent calls.

Table 2: U.S. Corn and Cotton Supply Demand
Corn Cotton
Item 02/03 03/04 04/05 05/06 06/07 1 02/03 03/04 04/05 05/06 06/07 1
Planted Acreage (Mil. Acs.) 78.90 78.60 80.93 81.76 78.02 13.96 13.48 13.66 14.20 14.60
Harvested Acreage (Mil. Acs.) 69.32 70.94 73.63 75.11 70.64 12.42 12.00 13.06 13.70 13.40
Yield 2 129.30 142.20 160.36 147.90 147.70 666.00 730.00 855.00 831.00 800.00
Supply Million Bushels Million Bales
Beginning Stocks 1,596 1,087 958 2,114 2,351 7.45 5.39 3.51 5.54 6.60
Production 8,967 10,089 11,807 11,112 10,433 17.21 18.26 23.25 23.72 22.40
Imports 14 14 11 10 10 0.07 0.05 0.03 0.03 0.03
Total Supply 10,578 11,190 12,776 13,236 12,794 24.73 23.70 26.79 29.29 29.03
Disappearance
Feed and Residual 5,563 5,795 6,162 6,000 5,950 7.27 6.22 6.69 5.90 5.90
Food, Seed & Industrial 2,340 2,537 2,686 2,985 3,545
Exports 1,588 1,900 1,814 1,900 2,000 11.90 13.76 14.41 16.80 16.80
Total Use 9,491 10,232 10,662 10,885 11,495 19.17 19.98 21.10 22.70 22.70
Unaccounted 0.17 0.20 0.15 -0.01 0.00
Ending Stocks 1,087 958 2,114 2,351 1,299 5.39 3.51 5.54 6.60 6.53
Ending Stocks/Use 28.1% 17.6% 26.3% 29.1% 29.0%
“A” Index
Carryover/Use (%) 11.45 9.36 19.83 21.60 11.30 — — — — —
Average Farm Price 2.32 2.42 2.06 1.95 44.50 61.80 41.60 *47.30 ??
1 2004/05 estimated; 2005/06 projected; numbers may not add due to rounding; 06/07 production estimated; use projected by 2006 Agricultural Outlook Forum, Interagency Commodity Estimates Committee, USDA. SOURCE: USDA/NASS/ERS/WASDE2 Carry-in bushels; Cotton in pounds.

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