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SPECIAL REPORT:
CORN
and
ETHANOLCORN
AND ETHANOL
In my view corn has been in a sideways trend since about January 12, 2007 to date. While unable to break through the top side on rallies the support level for March Corn around $3.88 has maintained integrity. The belief in some circles that present corn prices have attracted the needed additional acres has built an area of resistance around the $4.09 March Corn level.
ADDITIONAL CORN ACRES
In my view the addition of Corn acres is the major underlying story relating to Corn and Corn prices. Going back to my initial report "Ethanol: The Fuel of the Future(s)? I projected that we may well need as many as twelve million new acres to meet demand and stem the tide of reducing carryover. Ten to twelve million acres seems to be the accepted level needed at this time with some feeling we have already met that goal. A short note on freeing up Conservation Acres which if it were to happen I thought it would be announced in the upcoming farm bill. Not so! In fact the proposed farm bill calls for adding an additional 1.2 million acres to the Wetland Reserve Program over a five year period of time.
Numbers that I continue to see thrown around are eight to twelve million acres at 153 bushels to an acre, which I find to be interesting, because last years production was in the 149 bushels to an acre. I have picked up stories that a national implement dealer is recalling all unsold corn planters in Illinois, Indiana, and Iowa and shipping them to North and South Dakota. I confirmed with several sources in North and South Dakota that at the present time farmers in those areas plan on a major increase in corn acres. A long time friend and customer told me a major Montana farmer plans on plowing up his wheat and planting upwards of 10,000 acres of corn. So I do not doubt that there will be a large increase in corn acres, I question perhaps the amount of acres and the projected average national yield.
Switch in acres
I will admit that it is possible to have an increase of twelve million acres in Corn plantings. I would however point out that more than likely the vast majority of those acres will come from Soybeans. I would like to point out given present values as of this writing of $7.91 November Soybeans versus $3.94 December Corn the massive across the board Soybeans to Corn switch is not a sure thing. Upon seeking the advice of trusted farming friends in Central Illinois and Iowa I received some interesting observations. When looking at prime heavy soil Illinois ground:
A) Everything equal there will not be a wholesale switch from eight dollar Soybeans to four dollar Corn.
B) If the planters are running, the ground is working well and the sun is shining they will plant more Corn.
C) If the ground is working hard, the weather is not cooperating they will plant Soybeans.
My WAG (wild a*& guess), I think we will approach ten million acres, but not twelve.
Yield projections
For the sake of discussion let us assume that there will be an eleven million acre switch to Corn. One of the assumptions that we continually hear is the projected average national yield for 2007 at 153 bushels an acre, four bushels to an acre above 2006. Now that may well happen, but there is a mathematical part of me that is causing me to scratch my head. Can we add eleven million acres of corn, many coming from non-traditional corn areas, with shorter growing seasons, and lighter ground and still increase average national yield by four bushels to an acre? Keep in mind that the North Dakota average was slightly over 111 bushels an acre average, South Dakota was under a 100 bushel average (South Dakota was hit with severe hot weather), and Montana averaged about 146 on irrigated land.
I am not saying that 153 bushel national average cannot happen, but I think it is being a bit optimistic. My WAG (wild a^% guess), I think 146 is a little more reasonable than 153 if we see an increase of ten million acres or more.
WORLD FACTORS
. Rumors that China may cancel their corn sales made the rounds.
. Talk that the Brazil and Argentine Corn crops are doing well enough to provide export bushels.
THOUGHTS ON ETHANOL
Spoke with an ethanol contact regarding margins given the break in Crude and the rally in c... [download for more]
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