Commentary: Prospective Plantings report stokes futures price volatility

by Ron Sterk
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The much-awaited March 31 U.S. Department of Agriculture Prospective Plantings report has come and gone. While it provided the first indication into farmers’ 2008 planting intentions, it also further stoked the volatility fires under grain and oilseed futures prices.

The day of the report, futures for soybeans plunged the 70c-a-bu daily limit, soybean oil the 3½c-a-lb limit and old crop soybean meal the $20-a-ton limit. Corn initially climbed the 20c-a-bu daily limit, wheat futures plunged and nearby rice futures soared to the 50c-a-cwt limit to all-time highs.

On Tuesday soy complex futures rose higher, corn continued to move up, wheat continued to sink and rice reversed course. Wednesday brought higher wheat prices with nearby Minneapolis limit up, higher corn with July setting an all-time high of $6.15 a bu, mostly higher soy futures and limit up nearby rice prices.

The greatest "shock" of the report was the soybean planting number, pegged by the U.S.D.A. at 74.8 million acres, up 18% from 2007 and above even the high end of trade expectations that averaged 71.5 million acres. Never mind that the area still was 1% below record high soybean plantings of 75.5 million acres in 2006.

Intended corn area, meanwhile, at 86 million acres, was below expectations that averaged 87.4 million acres. In addition, stocks of corn in all positions as of March 1 were 6.86 billion bus, up 13% from a year ago but below both the average trade expectation of 7.1 billion bus and the range of 6.95 billion to 7.3 billion bus.

At midweek July 2008 through July 2009 corn futures contracts all topped $6 a bu. And some traders contend corn prices will have to push past $6.50 a bu to "buy" acres from soybeans to avoid shortages for domestic food, feed and ethanol use and for exporting.

Further complicating the situation is extremely wet and cool weather across much of the southern Corn Belt and northern Delta states that could delay corn planting. Early planting is crucial for corn to reach maximum yields.

According to several Corn Belt state universities, the critical period for planting corn across much of the Midwest is mid-April through mid-May, with yields declining an average of 1½ bus per day after May 10.

Another factor is soil temperature, which should be around 50 degrees Fahrenheit. Because of the lingering cool, wet weather, average soil temperatures in the wet southern portions of the Corn Belt were in the low 40s as of midweek, with central and northern areas in the low to mid 30s.

It is possible lingering wet conditions could result in even fewer corn acres and more soybeans. The wettest areas include the southern portions of Missouri, Illinois, Indiana and Ohio, all top 10 corn producing states.

Corn Belt states will begin to issue weekly crop updates with planting progress on April 7. How many acres of corn, soybeans, wheat and rice are actually planted will not be known until the June 30 U.S.D.A. Acreage report. Market volatility likely will not go away anytime soon.

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