Corn prices face 'correction' despite sowing delay

Macquarie underlined the relaxed attitude by US analysts to US corn sowing delays by forecasting that plantings would exceed official expectations despite the slow start and cautioning of a "correction" in prices ahead.

Many commentators continued to downplay the yield implications of the delayed US spring planting season, even after the US Department of Agriculture overnight said that farmers had completed 19% of corn sowings as of Sunday, thanks to cold and wet conditions.

That was below the 21% that investors expected, and the 28% average by then.

At Citigroup, Sterling Smith said: "The cold and wet weather will slow efforts over this next week, and the weather at the moment is far from ideal, however it is still very early and this problem can go away quickly enough."

Commerzbank said that "US farmers have shown time and time again that they are capable of achieving very great progress with planting within just a few days when weather conditions are more favourable.

"The fact that planting is currently lagging somewhat behind the average should not be seen as undue cause for concern."

'Buying additional area'

Macquarie said that the drier conditions in the run-up to spring would help farmers make a rapid catch-up on plantings.

"Generally dry conditions into this year's planting period mean moisture levels are still relatively low, so the farmer should be able to get onto the field relatively quickly after rains have passed through," the bank said.

Meanwhile the run-up in prices prompted by the sowings delays, as investors inject risk premium, will only encourage farmers to plant more of the grain, with area set to hit 93m acres, below last year's 95.4m acres, but above the 91.7m acres the USDA forecast in an end-March report.

"This risk premium that has been built into the corn market is also likely helping build on the bear case, as the higher price is surely buying additional planting area," Macquarie analyst Chris Gadd said, quoting analysis of historic USDA data.

'Price correction'

Indeed, of the eight seasons since 2000 when the average April corn price stood above that provided by crop insurance, in six "we saw an increase in corn plantings" from the USDA's end-March estimate.

"When we combine this statistical analysis with the anecdotal comments that we have heard from our US crop insurance business, we are sure that we will see an increase in corn plantings come the final estimates," Mr Gadd said.

Corn prices are poised for a "correction" as such factors become apparent, and face a "sharp dip" later in the year, assuming "reasonable" conditions for the summer pollination process.

"We think it is reasonable under this scenario to see new crop Chicago corn futures at $4.00 a bushel," he said, forecasting a 13.92bn-bushel US harvest this year, only marginally below last year's record production.

The December contract was on Tuesday trading at $5.09 1/2 a bushel, up 0.7% on the day.

Contrasting view

Separately, University of Illinois agricultural economist Darrel Good took a more pessimistic view of corn area prospects, saying that prices were not high enough to encourage extra area.

"Without a more favourable corn price response, it would not be surprising for acreage to fall short of intentions, particularly in northern growing areas," he said, proving downbeat on sowings progress too.

"Prospects for a cool, rainy pattern over much of the northern Plains and Corn Belt over the next 10 days do not favour rapid corn planting."

However, he also downplayed the significance on yield of delayed plantings, saying that in the 13 years since 1971 when corn was planted late defined as 20% or more seeded after May 20 only in five did yields turn out below trend.

"These results tend to support the notion that summer weather, not timeliness of planting, is the major determinant of the US average corn yield," Professor Good said.

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