USDA Releases Another Shocker:"More Corn and Less Soybeans and Cotton"

Forecast Implications

The acreage levels reported in the June report lend support to the acreage shifts already imbedded in our U.S. Agricultural forecast, which are:

•Some retrenchment of U.S. corn planted area in 2008

•Likely increase in 2008 U.S. soybean area

•Very likely increase in South American oil seed acreage in the 2007/08 season

•Likely small rebound in 2008 cotton plantings

Comments on the Report

The big story is more corn—lots more corn. In absolute terms, the big contributors to the rise in corn are from the corn mid-west states. The "I" states (Iowa, Illinois, and Indiana) were up a cumulative 4.7 million acres compared to 2006. The corn acreage increase came almost entirely at the expense of soybeans. States that form the perimeter around the "I" states added nearly a million acres each compared to 2006. In percentage terms, the big increases came from the delta states, where they shifted out of soybeans and cotton to support the corn area. Louisiana, Mississippi, and Arkansas increased their corn area by 150-to-200% from 2006 and considerably above their average for the 2002 through 2005 crop years. Add all the increases together and you get a 14.6-million-acre increase in corn area from 2006, and a 2.4-million-acre increase from March "Prospective Plantings." In some ways, the increase would have been even greater, but Texas cotton farmers that shifted out of cotton ended up planting sorghum rather than just corn due to seed choices and the suitability of corn as an alternative in certain parts of Texas. Nationally, sorghum-planted area increased to 7.7 million acres, up from 6.5 million acres in 2006 and an estimated 7.1 million acres in the March report. Given the new June corn acreage estimate, Global Insight would expect a 2007 harvest of about 13.1 billion bushels. Better build some more grain bins and still plan to put some piles out. We expect this production will push 2007 ending stocks to about two billion bushels and cool off the corn price.

The second biggest story has to be the drop in soybean plantings. Soybean acreage dropped 11.4 million acres from 2006 and 3 million acres from the March estimate. The cut in planted acreage is almost identical to the increase in corn area. The soybean supply and demand balance was already expected to move from relative plenty (high stock levels) to decidedly tighter supplies. The further lose of planted area will result in 125 million bushels fewer soybeans being produced, and likely continued price support for soybeans. For the few farmers that did plan soybeans, they may receive some very strong prices come fall: $8.00 cash soybeans are well within range.

Cotton acreage took another hit in the June report, falling to 11.1 million acres, down from 15.3 million in 2006 and 12.1 million in the March report. The biggest change from March was a 710,000-acre reduction in cotton in Texas (as mentioned previously, much of this area was planted to sorghum). Global Insight had expected the impact of favorable crop insurance coverage would be for Texas farmers to stick with cotton more than they did. Texas cotton plantings are estimated at 5.02 million acres, down from 6.43 million acres in 2006. The loss in cotton area should cut about 1 million bales of production and ultimately ending stocks. Ending stocks are projected to exceed 9 million bales by the end of the 2006/07 crop year. This level equates to more than half the projected 2007 crop. Cotton prices may see some support from the June acreage estimates, but true relief will only come from higher export demand.

Most other crops saw only minor pushing and pulling of acreage. Hay acreage had been reported at over 63 million acres in the March report,but was revised down to 61.8 million acre in the June estimates. Compared with 2006 U.S. hay acreage is up about 1 million acres. Tobacco harvested area was up for the second consecutive year at 355,670 acres compared with 338,900 in 2006.

By Stewart Ramsey