Views on commodities and energy
Arclights on U.S. plantings data
By K.T. Arasu
Investors will zero in this week on arguably the most important crop report of the year when the U.S. government forecasts how much corn and soybeans farmers will sow this spring across the country.
The report is expected to project more plantings of soy and less of corn than in 2008, based on the U.S. Agriculture Department’s survey of about 86,000 farmers in March, a month before seedings begin in the Midwest grain belt.
The Prospective Plantings report is eagerly awaited on grain markets and by investors in farm equipment companies, livestock producers, grain transporters or makers of products ranging from bread and pasta to ethanol.
“I have been getting so many calls from the investing community because it affects so many other business that are associated with the farm sector,” said grains analyst Joe Victor of brokerage and research company Allendale Inc.
The data will not be the only market driver this week. Investors will be also be checking the pulse of the economy for any signs of an uptick on Wall Street as global grain demand slips in the face of consumers recoiling from the recession.
Farmers in Argentina, which competes with the United States in the world grain export market, will end a week-long boycott of selling grains on Friday and the market is anxious to know the next course of action in fighting higher export taxes.
There have been mixed signals from Mother Nature. Floods in the upper reaches of the United States bordering Canada are threatening the seeding of spring wheat in about 500,000 acres, but southern Plains wheat areas are getting much-need rains.
Investors have a full plate of factors to chew through this week, but the main focus will be on the USDA report.
Analysts polled by Reuters expected farmers to plant 84.3 million acres of corn this year, down from 86 million last year. They were expecting 79.8 million acres to be seeded with soybeans, up from 75.7 million in 2008. [ID:nN26500623]
USDA will update on June 30 after another survey in June when most of the planting is usually complete.
BEARISH FOR SOYBEANS?
Grains analyst Bill Nelson of Doane Advisory Services said the report could be bearish for soybeans.
“If beans come in in the 79 (million) to 80 million range, with normal yields, it will be fundamentally bearish,” he said, adding that there was a cloud over demand as the United States was not expected to come out of the recession until perhaps 2010.
“Chick placements are down 6-7-8 percent week after week because demand is lagging,” he said, referring to the number of chicks that are placed each week with flocks that grow into meat-producing chickens.
Analyst Charlie Sernatinger of Fortis Clearing Americas said the USDA report could take the market by surprise if the department’s forecast for corn acres comes in at fewer than 84 million acres, and that for soy exceeds 80 million.
The United States is the world’s largest exporter of corn and soybeans — both used to produce animal feed and the renewable biofuels ethanol and biodiesel. So USDA crop estimates for the United States are closely monitored around the world for price implications.
The report comes at a time when overall trade volumes are expected to fall 9 percent this year, the largest contraction since World War Two, as demand collapses in the worst economic downturn in decades, the World Trade Organization said.
“The real dilemma surrounding the pricing of the 2009 crop is associated with determining value in a rapidly changing economic environment,” MF Global analyst Rich Feltes wrote in a report to clients last week.
“Is economic recovery and demand strength eminent? Is the economy headed for a period of rapid inflation and how would that influence soybean prices?” he asked.
In a 20-year period, USDA’s prospective plantings estimates had been below the final estimate eight times and above 12 times for corn — from the smallest difference of 153,000 acres to the largest of 3.84 million, according to the USDA.
For soybeans, USDA’s estimate was 12 times below the final estimate, and above eight times. The smallest difference was 25,000 acres, while the biggest was 3.5 million acres.
Chicago Board of Trade May soybeans <Sc1> closed 3.6 percent lower for the week at $9.17 a bushel. May corn <Cc1> fell 2.4 percent to $3.87 and May wheat <Wc1> slumped 7.8 percent to $5.07-1/4.