Corn Plantings to Rise; Prices Jump on Supply Concerns

Grain prices are back in the headlines and futures prices are limit up as the USDA updated their 2011 plantings and quarterly grain stocks. The USDA expects big increases in corn, wheat, and cotton acres as farmers attempt to capitalize on high grain prices. Grain stocks are also reported at tight levels due to strong global demand.

Prospective Plantings

Farmers are expected to plant a total of 239.4 million acres of corn, soybeans, wheat, and corn in 2011, the USDA said in its annual “Prospective Plantings” survey, up nearly 10% over 2010. "Planted acreage is expected to be up in most states compared to last year due to higher prices and grower expectations of better net returns," the USDA said in the report.

Corn acres were estimated at 92.2 million acres, a 5% increase from 2010 and 7% higher than in 2009. The U.S. is the world’s largest corn producer and exporter and the 2011 crop is the second highest planted acres since 1944. Iowa, Kansas, Nebraska, North Dakota, Ohio, and South Dakota are all expected to increase corn acreage greater than 250,000 acres.

Soybean acres declined by 1% from last year to 76.6 million acres, but will still be the third largest soybean planting on record. Total wheat acres are forecasted to be 58.0 million acres, up 8% from 2010. Cotton acreage is forecast at 12.6 million acres, a 15% increase from 11.0 million acres last year.

Quarterly Stocks

Corn stocks as of March 1 were 6.52 billion bushels, down 15% from last year due to strong ethanol demand, exports, and feed demand. The market was caught by surprise as analysts were expecting stocks to be 6.7 billion bushels.

Soybean stocks were also lower at 1.25 billion bushels, down 2% from March 1, 2010. The soybean stocks were 50 million bushels below what analysts had forecasted. Stocks of wheat increased over the last year by 5% to 1.42 billion bushels due to the large U.S. crop last year.

Conclusion

The market took an immediate bullish reaction to yesterday’s reports as corn and soybeans were limit up within minutes of the opening. No major surprises in the plantings report, but difficult weather could always change things. The lower than expected stocks are just another sign of how tight grain supplies are and the vulnerability of the market to supply shocks.

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