Row crop production on its way to normalcy, Purdue economist says

The U.S. Department of Agriculture’s Prospective Plantings Report, released Tuesday (March 31), didn’t show much change from last year—soybeans practically the same, corn down 1 percent.

“The last two years, 2007 and 2008, we’ve just seen massive acreage shifts for corn and soybeans,” said Chris Hurt, Purdue Extension agricultural economist. “This report shows that we are starting to get back to an equilibrium or closer to a balance here in much of the Midwest.

“In Indiana we are about 50/50 corn and soybeans. That’s about where we were going into 2007 and 2008, so I think we are moving back towards a little bit more stability.”

Hurt and fellow agricultural economist Corinne Alexander presented their analysis of the report via IP videoconference, which is archived at http://www.agecon.purdue.edu/extension/programs/outlook_connect.asp .

This year, corn producers intend to plant 85 million acres nationwide and if realized would still be the third largest acreage since 1949, behind 2007 and 2008. Hoosier corn producers intend to plant 5.7 million acres and Ohio corn growers intend to plant 3.3 million acres of corn, no change for either state from last year.

High fertilizer prices, high input costs for corn and poor fall weather for Western Corn Belt states didn't have much impact on farmers' decisions to take large acres of corn out of production, said Matt Roberts, Ohio State University Extension economist.

"The thing that is most striking is that all of the reasons that a lot of people were thinking that would drive a large reduction in corn acres really haven't had a lot of impact," Roberts said. "There are many areas in the U.S. that still favor corn profitability."

Soybean producers across the United States intend to plant 76 million acres in 2009. If realized, the U.S. planted area would be the largest on record. Indiana soybean producers intend to plant 5.4 million acres. Ohio is one state where acreage is expected to increase by 100,000 acres or more with the intention to plant 4.6 million acres.

“A year ago there was so much uncertainty and so many dramatic price changes going on,” Hurt said. “Much of the grain industry had to be very cautious on forward contracts or not even offer forward contracts for the new crop. We saw extremely wide basis levels, particularly as they were bidding for the new crop.

“Every indicator we have now is that we are returning to a much more normal grain marketing situation. There are aggressive bids for new crop. All of the grain industry is offering new crop bids at this point and at basis levels much closer to historical levels. After what we have been through—some of it pretty traumatic in not being able to offer contracts and extremely wide basis levels, it’s comforting to be returning to more of an equilibrium and more of a normal situation after some exciting times and some depressing times.”

Besides showing a return to some stability, Hurt said, the report shows prices have probably hit bottom.

“Corn supplies are going to be reasonably tight for the 2009 crop,” he said. “We knew input costs for corn were very high--particularly fertilizer prices, which, in many locations, struggled to come down as much as producers hoped they would. As a result, corn acreage will remain relatively low and give us fairly small carryouts in 2009 and on into 2010.”

Hurt believes this brightens our prospects overall for 2009 crop production and somewhat stronger corn prices--in the $4 per bushel range--and a boost for soybean prices—in the area of $9 per bushel range.

“Now harvest time prices, I think we will be talking around the higher $3 range--$3.75, $3.80 corn and that will vary depending on the location here in the Midwest,” Hurt said. “Going through the storage season in 2010, we have prospects of corn in the lower $4 range.”

Hurt said the bullishness lies on the soybean side of crop production, where planting intentions came in surprisingly low.

“This sets a tone,” Hurt said. “We already have very tight supplies, lower than expected stocks numbers, a smaller crop from Argentina and China buying record amounts of soybeans. When this is coupled with the low acreage of the new crop, it means $9 beans for the next year—maybe towards the higher $8 level at harvest, but then spanning into the low-to-mid $9 range with the possibility for $10 beans.”

Hurt believes soybean producers are past the worst of it and can feel more positive than earlier this winter.

“I think we can say the bottom is in and we’re past it, which is a good feeling,” he said. “I think we can feel pretty confident to look back and say, ‘Yes, those were the lows back this winter.’ Prices may not go straight up, but at least they are moving in a more positive direction than what we were seeing.”

One thing from the report that surprised Hurt was the overall number of acres that moved out of production. Hurt estimates that about 9 million fewer acres will be planted to crops this year, while Roberts estimates a reduction of 7 million acres for the principal crops.

"The big question is, where is all of that acreage going?" said Roberts.

Hurt explains that prices prior to 2006 were low and had been for quite some time. Then in 2007, grain prices multiplied and additional land was brought into production, which showed up in two ways, he said.

“One was double cropping—especially soybeans,” Hurt explained. “We think in 2007 and 2008 we added about 3 million acres of double-crop soybeans, but then there was about another 6 million acres nationally that could have been pasture or wooded land that got cleared and we added to our base. This year it appears we’ve taken out virtually all the additional land that came into production.”

Wheat is the one commodity that has relatively larger inventories and moderate prices, Hurt said. Nationally, all wheat planted is estimated at 58.6 million acres, down 7 percent from 2008. The USDA estimates Indiana wheat growers planted 470,000 acres of the national total, down 19 percent from last year, while Ohio growers planted 1 million acres, down 9 percent from last year.

The hope of some recovery in the United States and world economies by 2010 could be a further price-enhancing factor, Hurt said.

The USDA Prospective Plantings Report is available at http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1136 .

“The point of the report is to show how many acres farmers would be willing to plant at the current price,” said Greg Preston, director of the U.S. Department of Agriculture’s National Ag Statistics Service office in Indiana. “These aren’t the actual numbers, but are designed to help with the price discovery process.”

The actual number of acres planted will be reported in the June 30 USDA Acreage Report.

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