Friday, March 30, 2007

Corn Futures

Almost all issues of popular financial newspapers and magazines such as the Wall Street Journal and BusinessWeek have an article or two about ethanol and corn production. The U.S. Department of Agriculture got in the act on the last business day in March 2006, with its annual spring-plantings report.

The USDA says corn acres are likely to reach 90.5 million in 2007, very near the projection by the Allendale we discussed in our last post, “The Best of Intentions” on March 28, 2006. Since the USDA survey involves 86,000 farmers, it seems a fairly good barometer. The USDA will update its estimates in late June 2006.

What seems a little more speculative is the production estimate of 12.4 billion bushels that has been bandied about in some of the articles. Corn production of this magnitude implies a per acre yield of 130.5 bushels from each of the 90.5 million acres farmers are planning to cultivate in corn. This may seem plausible given that average yield was about 134.5 bushels per acre last year.

Ethanol producers have to be crossing their fingers that figure is met and surpassed. Just to fuel operations are existing plants, ethanol producers need an estimated 2.2 billion bushels in 2007. Stock piles have dwindled to about 6 billion bushels, 14% less than the same time a year ago. This means current production is even more critical.

Better seeds, improved planting methods, and targeted irrigation and fertilization processes have helped improve corn production. The winner of the
2006 National Corn Yield Contest, Francis Childs, coaxed 294.5 bushels per acre from his farm near Falls City, Nebraska. However, Francis is the exceptional farmer and his fields are on exceptional land. Not every farmer will achieve such success.

To a great extent 2007 corn production is not in the hands of farmers but at the mercy of Mother Nature. Will she be benevolent with rainfall and moderate temperatures? Wall Street gave both farmers and Mother Nature a vote of confidence in the wake of the USDA report. Investors bid May corn futures down 17% on the CBOT to $3.75 the ten-year high of $4.5025 set in late February 2007.

SD State University Agriculture Experiment Station
Scientists at the
South Dakota State University, Agriculture Experiment Station at Brookings, South Dakota are not leaving corn yields up to wishful thinking. Soil quality, climate and weather, and water quality are all part of their mission statement to improve agriculture production in the state.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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