Alternative Energy

[frenchee]

OT: Corn, Corn Everywhere
By DEBBIE CARLSON

U.S. FARMERS INTEND TO CARPET the country with corn this spring, chasing the dollars being printed at the local ethanol plant. The U.S. Department of Agriculture on Friday estimated prospective plantings of corn at 90.45 million acres, the highest since 1944. This is roughly a 12-million-acre jump over last year's planted acreage, as the exponential growth in ethanol demand has pushed corn prices above 10-year highs. The jump in prices has been widely followed outside the agriculture markets; indeed, not since the movie Trading Places, in 1983, have people been so interested in farm data.

The grain industry was expecting a hike in corn acreage this spring, but this was about 2 million acres more than expected. Chicago Board of Trade corn prices swooned Friday, falling to their daily exchange-imposed price limit of 20 cents. The May contract ended the session at $3.7450 a bushel, a drop of 28.75 cents on the week.

The sharp fall in prices doesn't mean the bull market for corn is over, however. Prices could decline for several sessions, but they already are off their February highs -- by 16.6% for the May contract and 10.8% for the December contract (which represents the fall harvest).

Just because farmers tell Uncle Sam they intend to plant wall-to-wall corn doesn't mean it's going to happen. By June 30, when the USDA will ask what they actually planted, that carpet could more closely resemble an area rug.

The biggest consideration is weather. "The next 45 days are critical," says Brian Basting, commodity-research analyst for Advance Trading. "There's a strong correlation between planting progress and yield."

Corn needs to be planted early to avoid developing during the hottest days of summer, and to produce an ear before an early frost. Planting before May 15 can result in optimal yield. Most grain-industry analysts are using a trendline yield of around 152 to 154 bushels per acre.

The short-term outlook for cool, wet weather in the Midwest won't help. Corn needs warmth to germinate, and farmers can't get heavy planting machinery into muddy fields. "It could be a challenge to meet our destiny," says Jerry Gidel, an analyst at the consulting firm North American Risk Management Services. He sees a near-term bottom for May corn around $3.60.

Also, farmers can be fickle. The big surprise in this report wasn't the corn data but the soybean figure. The USDA says farmers abandoned soybeans to plant corn. Soybean acreage fell to its lowest levels in 10 years, to 67.14 million acres, below trade estimates. "The corn market will have to consider whether or not some farmers might switch out of corn and back to beans. That could happen if prices swing too far with corn down and beans up," says Bill Nelson, associate vice president at AG Edwards.


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Key Commodity Indexes
CRB Group Indexes 3/30 Prev. Wk Yr. Ago
CRB Futures 407.45 405.34 365.35
Industrials 376.99 370.07 334.96
Grain/Oils 274.82 286.79 199.15
Livestock 311.09 310.38 266.00
Energy 673.41 630.82 672.20
Precious Metals 650.27 640.59 567.08
Reuters/CRB

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Since corn and soybeans are planted around the same time in the same regions, farmers often rotate the crops. If they can't plant their corn on time, they can always switch to soybeans, whose optimal planting period is longer.


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DJ-AIG Commodity Indexes
DJ-AIG Indexes 3/30 3/23 YTD
Commodity Futures 171.963 168.975 3%
Total Return 328.452 322.436 5%
Energy 252.916 239.512 9%
Petroleum 356.881 335.569 7%
Livestock 68.843 68.206 2%
Grains 49.586 51.622 -3%
Industrial Metals 233.285 233.285 6%
Precious Metals 112.735 111.573 3%
Softs 57.375 58.544 -12%
Dow Jones/AIG International

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If there are no hitches this season -- farmers get the grain in and yields are huge -- prices by year end could fall. Citigroup says corn prices will be about $3 a bushel by December 2007 -- lower, but still strong.