Planting delays in key areas of the U. S. corn belt this spring could lead to tight supplies of corn during the next year, forcing prices higher and further threatening profit margins at ethanol plants and livestock companies.
The slow pace of corn planting east of the Mississippi River, including major production states such as Illinois and Indiana, could cut ending stocks by as much as 35 per cent, according to Joe Victor, analyst for Illinois-based research company Allendale Inc.
“Our biggest concern right now is we do believe that USDA will have no choice (but) to reduce yield for the entire Midwest, reduce the planted acres (and) send stocks under one billion bushels,” Victor said. “Worst-case scenario, maybe we get end stocks … more close to 750 to 800 million bushels.”
Rainy conditions this spring were similar to obstacles that eastern corn belt farmers faced in 2002. That year, the U. S. Agriculture Department cut harvested corn acres by 3.8 per cent between its May projections and the January annual report, Victor said in a note to Allendale clients.
Using 2002 as a model for this year, harvested corn acres in 2009 could shrink to 74.85 million acres from the USDA’s projection of 77.8 million, according to Allendale’s estimates. The planting delays also could cut yield per acre to 146.5 bushels from the previously forecast 155.4 bushels.
The prospect of a reduction in ending stocks, which the USDA forecast at a six-year low of 1.145 billion bushels earlier this month, could push up Chicago Board of Trade corn futures in the coming moanths.
“While not enough is yet known to confidently forecast the 2009 U. S. average corn yield, it appears there is risk of the average yield falling below current expectations,” Darrel Good, extension economist at the University of Illinois, said in a research note. “The corn market currently appears to reflect a very low risk of such a shortfall.”
CBOT corn futures have rallied close to an eight-month high this week due to good fund buying.
“Who is going to be the hardest hit, most likely it will be the livestock sector (and) anybody that is not hedged on their input needs,” Victor said. “Possibly ethanol could get hurt again.”
High acquisition costs for corn have decimated profits at livestock companies and ethanol plants during the past year.