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Futures prices favour corn plantings over soybeans, CF says

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US farmers will favour corn over soybeans this year, fertilizer group CF Industries said, adding 2.5m acres to corn plantings.

CF said that based on current new crop futures, corn would provide better returns to farmers than soybeans.

Based on the continued strength of corn futures relative to soybeans, CF maintained a forecast of 90.5m acres, up from 88.0m acres last season.

CF saw nitrogen prices rallying this spring, as Chinese producer margins are squeezed, and famers seek to make up for slow applications in 2015.

Race for dirt

Farmers are currently watching the futures price for clues as to which row crops to plant come summer, in the so-called "race for dirt".

The ratio of new crop November soybean future prices to December corn futures in Chicago is a key measure of profitability.

Since CF's last estimate of corn sowings in October, the ratio has edged up to 2.3 to 1, from 2.2 to 1.

CF's estimates of corn seeding are in line with that forecast by the US Department of Agriculture, but ahead of the 88.86m acres forecast by the influential private consultancy Informa.

Nitrogen support

Soybeans are nitrogen-fixing plants, able to extract the crop nutrient from the atmosphere.

So lower soybean planting, and higher corn acres, would indicate higher nitrogen demand.

But CF said that a projected fall in wheat acreages would offset the higher corn planting, leaving North American nitrogen demand "steady" in 2016.

Demand to rise

Nitrogen demand should rally this spring, CF said, citing an uptick in application this spring.

"CF is projecting positive spring application volumes as farmers are expected to compensate for a poor fall application with nitrogen being the one nutrient that must be applied annually."

Buyers held back at the end of 2015 due to expectations of lower prices to come, and this combined with delays to application due to weather, "should lead to larger-than-average spring demand and a corresponding rebound in prices".

And CF warned that for Chinese producers, US urea prices prices below $225 a short tonne "may not be sustainable".

CF expects nitrogen demand to continue to grow at around 2% a year, which will "effectively absorb" the current overcapacity in the nitrogen market.

Earnings miss expectations

CF profits missed expectations, as the company reported lower prices and higher costs.

Net earnings attributable to stockholders in the last three months of 2015 fell to $26.5m, down from $238.3m in the same period last year, after sales fell and costs jumped by 50%.

Net sales were down 8.3 %, to $1.12bn.

CF reported adjusted earnings of $0.76 cents a share, compared to the $0.82 a share forecast by analyst.

CF is planning to buy $6bn of assets from Dutch nitrogen group OCI this year, which will make it the world's largest publically traded nitrogen company.

By William Clarke

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