“Clear as mud” describes the signals of pending corn acreage estimates. There are plenty of two-handed economists trying to make sense of the possibilities.
I do see an answer. But first consider these numbers:
U.S. farmers planted 86.5 million acres to corn in 2009 compared to 93.5 million acres in 2007-2008. Projected income per acre on corn vs. soybeans for the last couple of months has strongly favored corn. In the South, many producers are considering shifting at least part of their corn acreage back to cotton.
A recent survey of producers in Iowa indicated that Iowa's planted corn acreage will actually be down in 2010. The reason? In many areas of the state, corn yields were disappointing on acreage where corn was planted after corn. Producers want to go back to a more standard rotation of corn-soybeans.
Based on the economics of corn vs. soybeans, I've been in the camp of anticipating a big acreage increase for corn. At this stage, however, I doubt that such a huge increase is going to occur.
The table below shows the extremely wide range from bullish to bearish scenarios when one combines both increases in planted acreage and changes in yield.
I still believe that economics indicate that corn acres are going to increase. The average estimate of planting 89 million acres vs. last year's 86.5 million would actually be a fairly modest acreage inrease. With 89 million acres and a potential yield of 168 bu./acre, the carryover is 1.93 billion bushels with a stocks-to-usage ratio of 14.4%.
THE BULLISH SIDE
It doesn't take much imagination to believe the bullish scenario. Eighty-seven and a half million acres is still a million-acre increase over last year and 164 bu./acre would be a modest drop from this year's yield of 165.2. I believe the yield increase this past year was due more to genetics than the cool July.
But look at the bottom line. With neither one of these estimates for acreage or yield being extreme on the bullish side, carryover drops to 1.325 billion bushels and new-crop corn prices would likely average over $4/bu.
THE BEAR SIDE
Now put on your bearish cap. There are predictions from intelligent people who say planted acreage will be 90 million acres or more. If genetic increases continue to lift corn yields as many of the seed companies are predicting, a 172-bu. national average yield is not out of the question. Carryover then jumps to almost 2.5 billion bushels and at current price levels, the corn market is substantially overpriced.
I hate to be a two-armed economist, but the reality is that any of these three scenarios could occur in corn this coming year. So what do you do? At this stage I have to go the average-estimate route. Then, look at the price of corn and ask if it's a profitable price or not. Input costs have dropped substantially in the last two years. Corn prices can still be locked in for the majority of producers, as I write this column, for $4/bu. for summer 2011 delivery. For most, that's profitable corn.
At these price levels, we have advised subscribers to The Brock Report to be at least 60% sold. You can't go broke taking a profit. And if the bearish scenario plays out, everyone will wish they were 90% sold on the 2010 crop and 50% sold on the 2011 crop. When prices are profitable early in the season, put some money in the bank.
Richard Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.