9, 2007 -- On March 30, USDA will release an Acreage and Stocks report that could very well be the report of the century it is that important for the US agricultural markets. The report will measure the amount of acreage shift from soybeans, wheat, cotton, hay and other sources into corn. Demand for ethanol and feed use is so great, a historic rise in corn acres is needed to meet demand.
The largest shift into corn from one year to the next was 3.3 million acres. The pre- report estimates for the March 30 report suggests the rise from last year to be 6 million to 20 million acres. Needless to say, such a wide estimate indicates clearly why the report is being called by many the, "report of the century." The anxiety level and risk level going into the report is beyond measure.
If the shift into corn is less than 8 million acres it will be viewed as bullish the market projecting $5 a bushel in the not too so distant future. If the shift into corn acreage is 12 acres or more, it will be viewed as bearish and corn prices should head lower. But here is a rub. Most of the acreage will come from and at the expense of soybeans. Thus, the more acres planted for corn, the more bullish it is for soybeans. Or, vice versa.
The term PNR, point of no return, is a technical term that refers to the point on a flight at which, due to fuel consumption, a plane is no longer capable of returning to its airfield of origin. PNR, implies an irrevocable commitment.
According to Wikipedia, "Crossing the Rubicon" is a popular idiom meaning to go past a point of no return because it was an ancient boundary between Gaul and Italy. Julius Caesar crossed the river in 49 BC deliberately as an act of war where he is supposed to have said that, "the die is cast" and where he would eventually come to power.
The results of the March 30 report will be the PNR for the ag markets. Once the trade has a solid understanding of the amount of corn and soybeans that will be planted this growing season, US agricultural producers and consumers will have, "crossed the Rubicon" so to speak. The die will have been cast and the report will have a major impact on grain and livestock prices for years to come.
If the old record amount of acreage shift into corn from one year to the next is 3.3 million and the range as I stated before for the upcoming report is 6 to 20 million, a new all time record switch will be achieved. But can this particular record be shattered by such a large margin? After all, it is never easy to break a record of any kind especially shattering the old benchmark by two fold which would be in this case a 6.6 million acre increase. Or, breaking the record by six fold which would be 20 million more acres than last year. Records of any kind are always hard to beat which is why they are...records. But to exceed a record, any record by two to six fold will take some doing.
Still, record corn profitability is indeed stimulating an unprecedented acreage switch. Plus, there is also talk about higher fertilizer use to increase yield potential and profits. So maybe, US farmers are going to shatter the old corn acre switch record by an eye popping four to six fold. I doubt they can exceed the record by such an amount but it is certainly possible.
One large US seed corn company projects sales up nine percent from a year ago, suggesting acreage up a relatively modest seven million acres and well below the acreage switch projected by the USDA a few weeks ago. A switch of seven million acres would break the old record by two fold and be quite an accomplishment. But a seven million acre shift would also be bullish for corn prices and equally bearish for soybean prices.
Personally, I am anxious to have the report out of the way. Since October, a day has not gone by without a major discussion regarding the amount of acres to be shifted into corn and the long term implications for American agriculture. After March 30, there will be no more guesses about corn acres until next year.
Next years acreage report is irrelevant in my view because the upcoming report is indeed the report of the century. It will clearly indicate that farmers have finally cast the die. The March 30, will reverberate across US agriculture for years to come.
Call me at 406-682-5010 for ideas about the markets once the report of the centrury is made public.
(The information in this article is the opinion of Commodity Insight's Jerry Welch and subject to change without notice.)