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US farmers' huge bet on corn had better pay off

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US farmers' bet on yellow had better pay off.

Corn growers in the world's top producing country were on Friday revealed to beplanning to plant 95.9m acres with the grain – the largest corn acreage in 75 years.

Which, on the face of it, is good news. Consumers worldwide need a big American corn harvest to rebuild depleted inventories.

But the extent of the switch into the yellow grain carries the risk of being too much of a good thing.

Ideal situation

OK, it could set up the world for far better supplies.

Assume an 8% abandonment rate, and the yield the US Department of Agriculture is predicting for those acres that make it through, and the crop comes in above 14.4bn bushels, a clear record.

Ending stocks will end 2012-13 at some 1.7bn bushels, according to US Commodities, around the levels of 2009-10.

Buyers may hope so. US supplies were ample enough to keep prices below $4 a bushel for most of that season.

Yield threats

But the risk is that yields fall short of that USDA forecast, as they have done for both the last two crops – landing America with disappointing supplies.

The US is starting off with a handicap in meeting USDA expectations.

By state, the biggest area gain, of nearly 1.2m acres, is in North Dakota, where yields have averaged a below-par 130 bushels an acre over the past three years.

And while more area is also being squeezed out of some the traditional corn states, such as Iowa and Nebraska, that may mean avoiding best practice of rotating crops, and so end up producing modest yields too.

Plug in last year's yield and the corn harvest comes in below 13bn bushels - keeping the need for price rationing firmly on the cards.

Wheat prospects

Meanwhile, the scramble for yellow gold has worsened prospects for alternative grains - an effect exaggerated by the lower-than-expected area put down to major crops overall, of 238.9m acres.

Analysts had expected a further 1.7m acres.

Soybeans, of which farmers intend to sow 1.5m acres fewer than market expectations, is not the only crop affected.

The figure for wheat area came in the same amount below forecasts. Plugging in an average yield, this cost the US about 2m tonnes of production.

And this when Australia's wheat crop this year is expected to fall too, besides that in Ukraine, while industry group Coceral on Friday put a drop in the European Union harvest on the cards too.

Weather factor

World wheat supplies hardly look like drying up, as corn's have. But nor do there look like being as ready supplies as there were in 2011-12.

This raises the stakes should, say, a late frost skewer US farmers' gamble in planting corn early, or a hot summer again cut pollination rates.

It is appropriate that futures markets should be attempting to lure some growers away into other crops.

And it is fortunate that La Nina seems to be off the radar for next season too, cutting some weather risks, and improving the chances of the corn bet paying off.

By Agrimoney.com

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