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U. S. plantings guesses key for CBOT grains prices

The big unknown for U. S. corn and soybean prices – planting intentions – will likely keep the prices of both on edge over the next couple months.

U. S. planted acreage is always fodder for traders at this time of year, as farmers pencil out seed and fertilizer costs.

But the biggest factor is usually how Chicago Board of Trade corn and soybean prices for harvest delivery in November and December gyrate as a pointer to final farmer returns. At the same time the markets are trying to guess what’s on farmers’ minds for the 160 million or so acres available.

The ratio between CBOT November soybeans and CBOT December corn swings back and forth. Traders say that as a rule a ratio near to 2.2 to 1 favours corn acres. Above that, U. S. soy seedings tend to be encouraged.

The markets will juggle expectations until the U. S. Agriculture Department issues its official planting intentions estimate, based on farmer surveys, on March 31.

Last year at this time the battle for acres was intense as rising demand for grain exports and for biofuels feedstocks combined with crop losses, climate fears and a tidal wave of Wall Street speculative money to send grain prices soaring.

Midwest floods added to record gains by July. But since then grains have sunk as global economic crisis cooled demand.

But corn and bean prices stay tethered to their ratio. On Jan. 26, November soy closed at $9.45-1/2, about 2.15 times the price of December corn which ended at $4.39.

Since last fall’s harvest, the ratio peaked at 2.36 in mid-January as soy gained on corn for several days amid fears about Argent ine drought hurting soy more than corn there.

This year for Midwest farmers is shaping up to be “a flight from acres,” said Darrel Good, economist with the University of Illinois. “The core question this season is: How big does demand have to be to require an increase in acres?”

In 2008 farmers in the United States planted 86 million corn acres and 75.7 million to soy. There are two months before farmers make their final planting decisions, with fertilizer costs and crop insurance prices in February to consider.

Corn yields, for example, are usually a direct function of nitrogen fertilizer application. But those costs are up.

Less corn, more beans?

The current consensus among U. S. grain traders is that corn plantings could be unchanged or fall to 83 million acres this spring and soy bumped up to a record 80 million plus.

But a rise in total acreage is likely with more Midwest acres available this spring to plant. Winter wheat seedings are reported down four million from last year. About a million acres were released from the government’s conservation reserve. Southern farmers are also seen cutting cotton seedings.

In the heart of the corn belt, especially fringe areas of the Midwest where land is less fertile, planting soybeans is more attractive than it was a year ago given the high cost of fertilizer. Soybeans, a legume, fix nitrogen from soils.

A wet autumn last year also prevented farmers from applying fertilizer to intended corn acres.

“Probably the biggest factor that is a little different this year has been the cost of nitrogen fertilizer,” said William Edwards, extension economist at Iowa State University.

“It’s been difficult to get it and it’s been very expensive through the fall,” he said. “That could influence a few people to plant less corn and more soybeans.”

University of Illinois research projects corn fertilizer costs for spring planting at $143 per acre, down from $210 last autumn. That is more than double the cost of fertilizer for soybeans seen at $64 an acre for the spring.

But not all analysts predict corn acres to plummet.

“Unless there is a huge loss in Argentina, the market is not going to need as many bean acres as some are saying,” said Doug Houghton, analyst with Brock Associates, a farm advisory in Milwaukee, Wisconsin.

“If we’re talking about 80 million acres of soybeans we could be looking at a very large carry-out at the end of 2009-10 – more than doubling to 575 million bushels,” Houghton said.

Some analysts are pessimistic about future soy exports if top buyer China cools its huge appetite for U. S. soy.

There is also still potential for corn demand to improve.

For ethanol alone, current U. S. law mandates 10.5 billion gallons of ethanol be consumed in 2009 and 12 billion in 2010, up from nine billion in 2008. Most of that must come from corn.

“On corn the big question centres around the biofuels mandates. If those are binding, if we force people to use ethanol at the required level, we’ll need another 500 million bushels of corn next year,” Good said.

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