Acreage Reports and Political Unrest Affecting Grain Markets

Includes: CORN, DBA, DE, JJA, JJG, MOO
by: T. Marc Schober

The USDA announced an early planting acreage estimate for the 2011 crop year this month. 92 million acres are forecasted to be planted with corn in the U.S. this spring; a 4.3% increase from 2010. Soybean acres were forecasted 0.7% higher and wheat acres 6.3% higher than in 2010. Any land that is capable of being farmed this year will be put into production by farmers capitalizing on high commodity prices.

An unseasonably warm weather pattern moved across the Midwest mid-month, bringing temperatures into the 50’s melting a lot of the current snow cover. This winter has brought above normal snow fall amounts and any sign of an early thaw will be welcomed by farmers. Flood risks have been increased by government forecasts due to increased snow fall totals and thawing that is already occurring across the southern portion of the Corn Belt. Any amount of precipitation above monthly averages in March will increase the risk of a delayed planting season due to excess moisture in farm fields.

Grain Prices

Corn prices increased by 9.6% this month and closed at $7.22 per bushel. The rally in corn was again due to the USDA estimating ending corn stocks for 2010/11 to be the lowest since 1995/96 at an alarming 675 million bushels which leaves the ending stocks to use ratio at 5.0%. Political unrest in Northern Africa and the Middle East negatively affected corn prices mid-month, but prices recovered within a few trading sessions to monthly highs due to strong demand.

Soybean prices decreased by 4.0% in February, to $13.56 per bushel due to the political issues in Northern Africa and the Middle East. Traders have recently cut long positions in the grain markets. Roy Huckabay, an executive vice president for the Linn Group in Chicago said, “Today is all about speculators reducing riskier positions and consumers waiting for lower prices before buying.” The underlying supply and demand of soybeans should still be supportive of high prices, but short-term factors are delaying a sustainable rally.

Wheat prices also decreased this month to $7.82 per bushel, a 7.4% decrease. Factors affecting wheat’s price were similar to the case in soybeans. The political problems in Egypt have a direct correlation to the grain markets as Egypt is among the world’s largest wheat importers. Estimates for soybeans and wheat were unchanged in the February WASDE report, although analysts were expecting a cut in ending stocks for both crops. Soybeans and wheat should trade higher on the strong demand for corn.


The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report on February 9th. February’s report is typically quiet, but strong corn demand has driven corn supplies to dangerously low levels.

The cut in corn stocks was substantially higher than analysts’ estimates, which should pressure corn prices higher in today’s session. Corn stocks are now at a 15 year low, which will grab investor’s attention. Prices may test the all time high of $7.56 a bushel in the next few months.

U.S. corn supplies continue to tighten as demand was increased by 70 million bushels. Ethanol usage was increased by 50 million bushels and food, seed, & industrial was increased by 20 million bushels. Production and yield estimates were unchanged in the February report.


A 10 million planting acre increase in the 8 major U.S. crops was forecasted by USDA for the 2011 season this month. 255.3 million acres of planted farmland are now being forecasted, up from 2010’s 245.3 million acres. Corn acres are estimated to have the largest acreage increase, up 3.8 million acres to 92.0 million from 88.2 million in 2010. Farmers are looking to take advantage of the very high corn prices by expanding their corn acres.

According to Joseph W. Glauber, Chief Economist at USDA,

Despite an anticipated 4 percent increase in planted acreage, the corn market will continue to be tight in 2011/12. Assuming harvested acreage of 84.9 million acres and a trend yield of 161.7 bushels per acre, corn production for 2011/12 is forecast at a record 13.73 billion bushels. Because of this year’s smaller carryout, total supply for 2011/12 is estimated at 14.425 billion bushels, an increase of only 250 million bushels over 2010/11 levels.

The USDA report also noted that ethanol usage will continue to increase through 2011/12 and could account for 36% of the total domestic corn crop. If this increase in usage outpaces the increase in yields, expect corn prices to continue to rise long-term.


Farmland prices continue to rise in 2011 as the farmland price index remained above growth neutral for the 13th straight month at 75.9, a slight increase from January’s 75.4. Respondents noted they expect the higher inputs may constrain the rate of growth in 2011 compared to 2010.

Ernie Goss said:

Based on our survey of bankers, farmland prices continue to grow at an annualized rate of more than 15 percent and agriculture equipment sellers are experiencing surging sales across most of the region.

The rural economy continues to lead the way in a slowly improving economy. Strong farm income and farmer spending is keeping the rural economy steaming ahead. High grain prices and expectations of record planted acres could bring record production and profits to the rural economy in 2011.


Now that the initial USDA planting acreage estimates have been released, expect any adjustments to have an immediate impact on the grain markets. Although soybean and wheat prices decreased in February, corn, a farmer’s most profitable crop, continued its rally. High grain prices paired with very strong comparable sales are still justifying the high farmland sale prices across the U.S. Expect farmland values to continue their upward trend throughout 2011.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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