Farmers to cut US planting

Financial Times | March 30, 2009
By Javier Blas in London

US farmers are set to sow fewer acres this spring with crops such as corn and wheat, breaking a string of four years of increases in a move likely to support agricultural commodities prices through the economic crisis.

The US Department of Agriculture will reveal its first acreage estimate on Tuesday in its Prospective Plantings report. Because the country exports half the world’s corn, a third of world soyabeans, and a fifth of the world’s wheat, changes in acreage and hence in output have a huge impact in global food prices.

Traders anticipate a drop in almost every major crop with the exception of soyabean, bringing the country’s cropland to about 248m acres, down 2 per cent from last year. Farmers are planting less because reduced profitability on the back of current low prices and high cost for fertilisers.

The overall acreage fall would be the first since 2005 when US farmers started to expand their cropland to cash in on high prices brought by strong consumption from the nascent ethanol industry and developing countries such as China.

Ranchers are also expected to cut sharply their production of meat and poultry this season, the first simultaneous drop in animal protein output since 1973.

Although the drop in cropland and meat output will support prices, analysts were unanimous in warning that the deep global economic crisis’ impact on demand would cap any spike and that a repetition of last year’s record prices was unlikely.

The key US crop is corn and traders forecast a drop in planting to 82-84m acres, down from last year’s 86m and 2007’s peak of 90.5m. “It appears certain that 2009-10 US corn balance sheet forecasts will tighten significantly,” said Lewis Hagerdon, an agricultural commodities strategist at JPMorgan.

Corn prices have fallen to $3.90 a bushel, lower than last Junes’s record high of $7.65, because of lower demand. But prices remain above their 10-year average of $2.75 and the prospect of lower supplies is keeping forward prices for the next crop season at a premium above current spot levels.

Traders said farmers faced high cost for fertilisers, a critical input for corn, and were likely to plant alternatively more soyabean, which requires less fertiliser. Traders see soyabean’s acreage above 80m acres, up from last year’s 75.7m. Cotton planting is likely to hit its lowest level in 26 years as US farmers move away from the fibre amid low returns.