Monday, March 31, 2008

USDA Crop Report

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While weather will have be the determining factor on what actually is harvested, as I predicted last week [Cutting Back on Powershares DB Agriculture Fund - Focus on Fertilizers for Now] when I wrote

With that said, no change to my long term view and I look forward to next week's crop report - my expectation is the exact reverse of what happened last year when farmers piled into corn due to the ethanol boondoggle. With the ridiculous rise in wheat, I expect a huge upswing in wheat plantings and ... *drumroll* a shortage in corn. Which will drive it up next fall/winter ;) And so the World of Shortages continues

Well, lo and behold, corn plantings are down 8%. This in fact, was probably the easiest prediction (aside from bulls touting Kool Aid during every downturn about how everything is fine) I've made on this blog. Simple supply and dynamics at play. Unfortunately for Americans corn has been so subsidized for ages that it literally permeates every part of our food chain. So in 6-12 months when corn begins a new leg up, you are going to be paying for this in a very large way. And it plays right into my prediction of a coming "meat" shortage as corn is a major input in feedstock for chickens/cattle/etc. But maybe your wheat bread will stabilize... for a year... until next year's crop report when farmers will flock back to corn to take advantage of the huge increases we'll have in 12 months. And so we'll keep going...

Now where is that Ultralong cotton ETF....
  • U.S. farmers will plant more soybean and wheat crops this year after prices reached records, while corn and cotton acres will drop, the U.S. Department of Agriculture said.
  • The government survey showed growers will seed 74.793 million acres with soybeans, up 18 percent from 63.631 million last year, the USDA said today in a report. Spring-wheat planting will jump 7.8 percent, as corn planting drops 8.1 percent and cotton acres fall 13 percent, the USDA said.
  • Increased soybean and wheat planting may help refill dwindling inventories, while declining corn output may squeeze supplies available for ethanol makers, including Archer Daniels Midland Co. Prices for most farm commodities reached records this year on booming demand for food, fuel and animal feed.
  • ``The acreage shift into soybeans and away from corn was larger than people expected,'' said Greg Grow, director of agribusiness for Archer Financial Services. ``The markets sense we now need to raise corn prices at the expense of soybeans,'' to increase the incentives for farmers to plant corn this year, Grow said.
  • Soybean acreage also may increase because the crop produces its own nitrogen fertilizer, making it less expensive to grow than corn. ``Corn is a crop that has much higher input costs, especially with regard to nitrogen that is now over $900 per ton,'' said Joel Karlin, a product manager at Western Milling in Goshen, California. ``Soybeans are a good option for those that want to replenish the nitrogen in their soil.''
  • Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, followed by soybeans at $26.8 billion. Wheat was in fourth place, behind hay, with a value of $13.7 billion.
  • The USDA said 9.39 million acres will be planted with cotton this year. That's down from a forecast of 9.5 million acres last month and 10.83 million acres planted last year, as growers plant more valuable crops.

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