Corn 2012 Output Under Threat From Rising Inputs

Convent ional wisdom holds U.S. farmers will boost corn production next year because of historically high prices, robust end-user demand, and low global inventories.

But corn prices, off their highs by more than $1 a bushel, are now only 12 to 13 per cent above year-ago levels, and input costs are on average 25 per cent higher. If corn prices weaken further while input costs stay strong, they may be more inclined to scale back.

The prospect of a sharp climb in global corn production in 2011 and 2012 has helped steer the price of critical crop production inputs higher as well. The value of widely used fertilizers, crop chemicals and farm diesel are all up strongly on the year and in most regards are trading at their highest levels since their all-time highs in 2008.

U.S. Midwest average prices for such critical inputs as anhydrous ammonia, urea, potash and liquid nitrogen are all up by roughly 25 to 30 per cent since the fall of 2010.

However, corn prices slid sharply during September and have struggled to recover, complicating things for farmers who typically lock down new crop acreage allocations soon after harvest to complete some field preparations ahead of winter.

But weakening crop values and rising input costs may discourage some farmers from committing to large jumps in corn production, especially after a season where many growers saw corn yields underperform relative to soybean yields.

East versus west divide

One of the year s main narratives was the disparity in growing conditions on the west and east sides of the corn belt.

In the east, widespread field floods and cold temperatures seriously delayed spring planting and the late-seeded crops suffered more during a midsummer heat wave. Some eastern farmers are still harvesting, weeks after their western counterparts were finished.

That s delayed fall field work and so fewer eastern growers are committed to corn production in 2012 compared to western growers. Although less corn is produced in eastern states, even a modest reduction could hinder a large jump in U.S. corn output in 2012.

While many traders and analysts still pencil in large increases in corn output in 2012 based off price assumptions alone, such a production rise is not set in stone. Actual output totals may remain a moving target until deep into next year s planting season.

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